Hello and welcome to The Download. I'm your host, Dave Richardson, and it is time to check in with Canada's hardest working economist, Eric Lascelles, chief economist at RBC Global Asset Management. Eric, it is a hard time of year for you because you're watching the rest of us moving into holiday season and you're working harder than ever. That must leave you bitter, angry, frustrated?

I just wish they wouldn't put all those numbers out on December 25th, Dave, but someone's got to cover them. And so, yeah, you're right. No holidays for me.

There we go. And then I hope a lot of people listen to us on the podcast. Of course, you can get us anywhere you subscribe to a podcast or anywhere you download podcasts. But we're also on YouTube. You can subscribe on YouTube to see this, not only Eric Lascelles, Canada's hardest working economist, but he's hitting the gym. He's buff right now. Canada's buffest economist. You're taking the hard work into your physical strength and power now.

If you say so, Dave, I'll take it.

Well, he was a scholarship athlete. A lot of people don't know that about Eric Lascelles.

Dave, let me just give you a little addition there. As a middle-distance runner, I went to university, and indeed, I think, emerged from university, weighing about 145 pounds, and so slightly inconsistent with the rest of that story. But anyways, yes, I did do some sports.

Well, they did call them the Schwarzenegger of cross country back at Princeton. Actually, speaking about hard working and looking buff, the Canadian jobs market has been on a bit of a run here. And we got some numbers this morning and they’re pretty good again, right?

Yeah, we saw some pretty extraordinary ones. So let the record show the consensus was for a job loss. The assumption was there would be a negative number. There was not a negative number, Dave. It was plus 54,000 jobs, which is a big number for Canada just in a general sense. And then you think about the fact there's not a lot of population growth, it's a really big number. Now, people criticize rightly these labor force survey numbers because they actually don't do a perfect job of understanding that the population growth isn't good, and there's some assumptions that go in. It probably is a bit inflated, let's be fair, but it was still a strong number. Maybe the important thing here was it was 54,000—that was November—but it came on the heels of 67,000 for October, which is huge, and came on the heels of 60,000 for September. We've had three consecutive, I would say, monster job numbers. Let's delete the podcast from last month because I think we said, well, this can't be sustained, and it'll have to reverse. And of course, it hasn't reversed. You can poke holes, and you can say, well, full-time was down. So that's fair. It wasn't a super high-quality hiring. And so on. But, gee, in the end of the day, there's three strong months here. The unemployment rate was actually the bigger story here because we went into this with an unemployment rate that was 6.9%. The consensus was it would go back to 7% because it was a bit funny. It had gone down so much as it had before that. It's now 6.5%. It just fell by four-tenths of a percentage point in a single month. Now, some of that is, it did seem like there were fewer people looking for jobs. Some of the mechanical things in the background that may or may not stick. Let the record show I'm going to assume this number goes up a little bit again in the coming months, just because I don't think we've seen truly an explosion of economic health in Canada. But it would seem that there was some strength here. Now, being an economist means surviving or dealing with not just different inputs, but sometimes just contradictions. And so, for instance, you may know that there is a second job survey in Canada. It's not like the US where it comes out at the same time. In Canada, you get it six weeks later. So we quite literally only have the September number for this. No October yet, no November yet. So it's awfully stale. It is notable, though, that the September SEF survey of employment payroll and hours says that September saw a job drop of about 60,000. So we've got two estimates for September. One was plus 60, one was minus 60. So good luck with that one. The business outlook survey in Canada suggests that hiring plans weren't that enthusiastic. The Canadian Federation of Independent Business suggests that their hiring plans aren't that keen. We're a little bit flummoxed by what's going on here. I would say I'll take the under, meaning I'm not convinced hiring is really going this fast. But equally, three months in, I can't equally say it's all a complete mirage. So there would appear to be some mild rebound happening. We've always thought, gosh, the level of uncertainty was existential for Canada back in the spring, and the fear was there would be enormous tariffs. And the reality is they're not enormous outside of a few sectors. And so we said a few times, well, it makes sense if there was a bit of a rebound somewhere in here. Perhaps it's just you recalibrate it to a still painful but less painful reality. Maybe that's what we're getting right now. We're dubious. It's an economy that's racing forward, but equally, it's growing anyways, I would say. And seemingly adding perhaps some workers, depending on which survey you believe. Just stacking up, we have had now a year and a half of rate cuts and there's probably some benefit that accrues from that. On the fiscal side, as much as the focus was on this latest budget and what will come down the road and military spending and CapEx and all those sorts of things—which we do think will be a tailwind important one for Canada in 2026 and beyond—actually, the underappreciated part of that budget was they think that the deficit is actually biggest this year, the year that we're in, and that concludes next spring. That's just a very needlessly complex way of me saying, well, there's a fair amount of fiscal stimulus that's been swirling around, too. Things are looking, it would seem, a bit better, even if you're skeptical that Canada really added 54,000 jobs in November.

Yeah, 18 months into the rate cuts. And not just looking at it numbers-wise, there seems to have been a shift in tone out of the federal government in terms of a focus on generating growth and having the economy move forward a little faster. That recognition that we've underperformed, particularly the US. And like you said, this big tariff scare in January, February, which creates market disruption. And not dismissing that, it hasn't gone away, as you say, but it ends up being better than expected, which is always key. We've talked about this a lot on this podcast, that sometimes it's not just the actual number, it's that the number is better or worse than expected. So the market sets up thinking it's going to be bad. It ends up being actually not so bad. And that in and of itself means that things can move forward. And you're the serious economist here. I'm the quasi economist, although I've got the degree back there that says I actually am an economist, but I know we would debate that, or you would debate it for me. But I've been in Toronto for the last week. I'm not in Toronto very often at home. And just walking around downtown, just looking at restaurants, going into the mall and just those anecdotal things where you see people with lots of bags full of stuff that they just bought. And there just seems to be an energy. I was out in Alberta, I was in BC, I was down in Atlantic. I’ve been all over the country, really, over the last couple of months. There seems to be a little bit more optimism around the Canadian economy. And then I guess if you look at the GDP numbers, it reflects that.

Yeah, that's right as well. So thanks for pulling that in. I would be very cautious and say, well, it's not a recession anyways. At a minimum, you can say it's not feeling like that. Q3 GDP came out for Canada, and it was up 2.8% annualized. The consensus had been 0.4. Technically, we beat it by seven times. That's a little unusual. It was maybe the job numbers not quite as good as it looked. For instance, domestic demand, which is how much consumption and investment growth there is, that was basically flat. The growth was another funny thing. Basically, Canada produced more things because it imported fewer things, if that makes sense. Just to meet a flat level of demand, you had to make more, which is still legitimate. GDP is a measure of making things. They made more things, apparently, and so we'll take that. But it wasn't a function of demand splashing higher in particular. You could quibble, but still it was growth. That's important, too, because remember, Q2 GDP had been negative. Of course, those two negatives in a row, had there been one, would have been pretty good for a recession talk again. So we saw growth. Then actually, it didn't quite slip beneath the waves because I did see it in a newspaper or two, but Canada released its latest productivity figures, and it just happened to include revisions going back to 2022. You may recall the narrative has been Canadian productivity, not just even growing slowly, not even stagnating, just falling. Like productivity has gotten worse, which is really not supposed to happen. Did we all throw out our good computers and forget all of our school learning and experience? It would seem not. It was strange. They've revised right back to 2022. The takeaway is that the level of Canadian productivity is literally a couple of percentage points higher on a level basis than they thought it was as of a quarter ago. That period since 2022, not impressive, to be clear. It basically has been flat to slightly higher, whereas previously they thought it had been materially lower. Not to say we should abandon all efforts for tax reform and productivity enhancement, and I still think there's a lot that can be done. And this isn't a story just from the last quarter or two and tariffs and so on. It's a multi-year story. But it seems like maybe the Canadian economy wasn't doing quite as badly as we thought on that front as well. I guess all sorts of good news. You can express a little bit of skepticism about if it's as good as it looks for GDP and the employment numbers, but certainly there's good news in there.

Well, it just makes it harder to be Canada's hardest working economist when everyone else is working harder. It just raises the bar for you.

If they finally can put my numbers out.

But I mean, fundamentally, productivity and the challenges around productivity for the Canadian economy, I mean, that really is at the core of Canada's issues relative to many other countries around the world, that productivity number. We would love to see Canadian productivity start to creep up and accelerate.

That's right, it is the ultimate measure of financial well-being. People do not get real wage gains over any sustained period of time unless there is a rise in productivity and corporate profitability. Well, they can squeeze workers or inflation. There's ways to enhance profits. But to do it sustainably and in a healthy way over a long period of time, fundamentally, your productivity has to go up. It's nice to see it wasn't as dismal as it had looked, but there's certainly a lot of room for improvement. We're now cheering and celebrating that productivity levels are about where they were in 2021 as opposed to being 5% below where they were in 2021 or something like that. So more work is needed. I would say not to be partisan in the least, but the latest budget did refocus on the economy, as you mentioned, Dave. It's a new emphasis. And a little bit of tax cutting here and there, the accelerated depreciation maybe being of greatest relevance to productivity and removing some red tape as well, I think is potentially important. And so we're hopeful we do get some more productivity growth out of this. I should say, abstracting from Canada to the world, we are in the school that thinks that AI is a proper breakthrough and a general-purpose technology and will enhance productivity globally and across many sectors and for many workers and people. We're hoping we start to see that a little more fully. In fact, Josh Nye, our intrepid senior economist, and I are working a way on whether we are indeed seeing initial evidence of that right now. We're hoping to pop that into our next Macro Memo when that comes out. Yeah, keep your eye out for that.

Oh, there we go. And make sure you're following Eric. He’s fantastic on Twitter and on LinkedIn. You're all over the place. You've got lots of other videos that are available on the RBC Global Asset Management website. So if you want more Eric—and who doesn’t?—there's lots of him everywhere. And it's these insights. Really what we love about Eric is he can express it all and articulate it in a way that almost any of us can take something away, whether we're economists by trade or just business owners or run of the mill folks trying to figure out how to make it through the economy. Before we move off of Canada, Eric, we had Scott Lysakowski on a couple of weeks ago, and we were talking about Canadian equities, and we just gone through this earnings season. Canadian earnings have been surprisingly robust, and it's really driven a terrific Canadian stock market. Canadian stock markets outperform the US over that 18-month period, coincidentally, when we started lowering rates. But we're seeing everything that's going on flow through onto the balance sheet and on the income statement of Canadian companies.

Yeah, that's certainly been the case. And obviously it's important for Canada more than many countries, certainly more than the US. There isn't quite a perfect overlap of GDP to stock market index. And of course, there's greater concentration in precious metals and energy and banking. And that doesn't map precisely back to the economy. But certainly, there is some rhyming going on there. And so that's a heartening thing. And in particular, to the extent to which banks are feeling fairly good as per the latest round of earnings numbers, that is a not bad reflection of what's happening in the economy, obviously, because those are quite intertwined.

Yeah, and we had our Stu’s day's podcast with Stu Kedwell this week. And we went deep into the bank earnings, and that was one of the observations. Canadian banks are big and they're all a little bit different and they've got interest in other parts of the world and different businesses, but they're still a pretty good reflection when they're doing this well, a reflection that the Canadian economy is probably chugging along at a decent clip to drive those businesses.

Yeah, I think that's exactly right.

Well, then let's turn our view down south of the border. Originally, we book all of these appearances for Eric to line up with the US jobs reports, which are usually the first Friday of each month. But of course, we had a government shutdown, which has thrown that schedule out. The dog ate it. And so now we got an interim jobs report last month, which went back to September. We'll have you back on later on this month, we're going to get a broader view of the US labor market. But in the interim, we had the ADP report, which is the payroll report, and that was kind of dismal earlier this week. What are your thoughts on the US labor market and what's going on in the US economy? It just feels like things are not going as well as they have been.

Yeah, I would concur. And so, again, we're running not blind, but we're running with some reduced visibility here. And so that, of course, relates back to the shutdown and a whole bunch of fundamental US data didn't get released. And some of it is lost in time forever. For instance, we will never get an October CPI report, just as an example. I would argue it maybe doesn't matter too much. We will get the price level then in November. It's not as though we suddenly just don't know what the cost of things are going forward, but nevertheless, we'll never quite get that October snapshot. For most other things, we'll get it, we're getting it late. For instance, normally today would have been the jobs data for the US as well, and instead that's coming in mid-December. We're going to have to sit on that for a little bit, December 16th, to be precise. We're waiting on that. In the meantime, as you've said, we have got another little snippet. One thing, just two weeks ago, we finally got the September job numbers. That was actually 120,000 jobs, which was better than expected, though the unemployment rate weirdly went up. So further to these numbers just are messy as can be every which way, whether you're talking Canada or the US. The optimist would say, hey, job creation at a time when it wasn't clear that there was any. The pessimist would say, well, that's also the highest unemployment rate we've seen this cycle at 4.4%. There is some deteriorating trend here. I do agree with you, I think that there is some, at least, I'd say, modest deceleration in the US economy right now. You mentioned that ADP survey, so we've now had it actually for November as well. It's pointing at negative numbers. It says that the US economy lost 30,000 jobs in November. That doesn't precisely match with what payrolls will say. We'll see. Wouldn't be surprised if it was still a modest positive. But the bottom line is, it does look like the labor market has cooled pretty significantly. Harder to say. We have ISM numbers that were similar to where they were the prior month and so on, but consistent with some softness, I would say. We're looking at the Beige Book, which did continue to come out. The Fed was fully funded, and this is a Fed publication. It was soft, not collapsing. I'm walking away saying it is a somewhat weak US economy. It's not in collapse mode. We are budgeting for Q4 GDP to be pretty weak, though. Now, some of that is just a shutdown. The shutdown temporarily reduced activity. Some of that—or most of that—we get back later. But I do think that particularly on the labor market side, there's been less hiring. A question is, you hear some of these big tech companies saying, hey, we think we can grow our revenues super fast over the next year or two while simultaneously laying off workers. That is code for, we think there are major productivity gains to be had, and maybe that is an AI comment since they are very much at the bleeding edge of AI. Now, I don't want to suggest that productivity gains are definitionally job losing. That's not necessarily the case at all. Very often it's consistent with jobs that are retained or even a job growth. But they think they're getting productivity gains. It could be a time when the labor market does not keep pace with the economy. We're on alert for any evidence of structural unemployment rising. And is AI going to displace enduringly workers? So far, I think the jury is out, at best, and we're just coming out of the period of the lowest unemployment rate that we've seen in generations. I think it's awfully premature to suggest that suddenly it's glaringly obvious that we're going to see the labor market do badly forevermore. But equally, there is a bit of an argument here that the rate of technological change is so extraordinary and so broad and affects not just a narrow work set or not just unskilled workers or something, but everyone that we do need to watch awfully closely to see if that starts to change the game fundamentally.

Yeah. This is going to play out over a number of years, and we will watch it every month because it will be one of the more fascinating transformations of the economy and workforce that we've seen in history.

Absolutely. I mean, even just in my little team, we talk about this stuff every single day, not just in terms of what's going to happen for the world, but in terms of our own usage. We've got a team of developers helping us build out one thing right now when we're playing with this AI model and that AI model. And when is it hallucinating? When is it telling the truth? Which one is good at what thing? And, oh, okay, it could make Python code. Oh, I can run the Python code as well. We don't need to go over and actually compile it or interpret it ourselves. The rate of progress is astonishing. And I'm sure you use it as well, Dave, and perhaps use it personally. It's replaced Google searching for me. I'm only going to Google search if I absolutely have to. I'm getting the curated answer often quite perfectly and then maybe imperfectly sometimes. And so you have to be a little bit savvy right now and able to recognize that doesn't sound quite right. And where did you get that from? And it says, oh, well, I was just synthesizing it. So anyways, it's a brave new world. And best to be figuring that out as quickly as we can.

Yeah. Even though I'm closer to retirement than the start of my career, this is an offside tip of the day from me, but for the 59 + cohort who are still out working and want to work a few more years, you got to get on that AI train and use those tools. They're going to help you in your personal life as well. But for older workers to embrace the change is going to be important for the latter stages of your career. Just one number out in the US today that is always significant—given the big narrative, particularly in the US and politically around affordability—and that was the Fed's preferred inflation number. And that came in okay.

It did. The September data. And again, everything is delayed here. We don't normally get too excited about data from three months ago or thereabouts, but nevertheless, it did finally come out. The rate of inflation was 0.3%, month over month, for September. The core number was 0.2. In an ideal world, I'd love these to be 0.2s and occasionally 0.1s. But in the modern context or in the recent context, they were exactly as expected. They are not out of control. We think US inflation is running around 3% right now, and it's consistent with that. I guess no big change in the story right now. But I will say, we've seen clear evidence of inflation, including within this, from tariffs. A fair fraction of that is now in the numbers. So not to make it any less painful if you're paying that higher cost on whatever product it is that's become more expensive. But we're a material fraction of the way through the adjustment process. As a result, as we look to 2026, with all humbleness and recognizing there are always curveballs thrown and any number of surprises that will come along the way, we do see a pretty good set of tailwinds here. It starts with the tariff headwind perhaps becoming a little bit less intense as the adjustments happened. We're hoping not another US government shutdown, though there could be one on February 1st, but thinking not, and betting markets would say one in three chance it happens again. So we're assuming not. And then some tailwinds. You've got rate cutting that's been happening with a lagged benefit. There's fiscal stimulus. And it could be almost anyone, US, Canada, Japan, Germany. A lot of countries are in this similar mode of some monetary stimulus on the table, and most of the world likes it. Oil prices are fairly low, and high-income consumers are feeling pretty flush right now, given all the stock market gains that have accrued over the last year or two, and they usually spend part of that. And so we do think there's room for economic growth to pick up in 2026, as much as 2025 has been incredibly uncertain and awfully complicated at times.

And as we've talked about, since the Fed is cutting in with an inflation backdrop, as you say, that likely is around 3%, they seem to be pretty comfortable. Then if you look out at the longer end of the yield curve—so you look out at, say, the 10-year, which is what we follow most closely—it looks like everybody's comfortable with inflation running a little bit higher than we'd probably like for a little while. It just seems like we're going to live with that.

It hasn't been a runaway train. The economist in me says it's not ideal, and we'd rather be back at that 2.0%, and maybe it would be worth tolerating slightly higher rates to get there, just given the importance of that credibility. But here we are with economies that are growing. It hasn't been a disaster. I think it's fair to say, particularly with a new Fed chair coming in and a few other things, probably there is a tolerance for a bit more inflation. So let's understand and appreciate and recognize that it limits maybe how low long-term yields can get. But at this juncture, none of this is much of a surprise. The adjustments have been significantly made.

I'm making an early prediction that the economic name of 2026 is Kevin.

Okay. Yeah, that's right. I get your point there.

There we go. So Eric, great catching up with you. Glad you're looking so good. We're going to get you on before the holidays. So I wish your family a happy holiday anyways, but we'll come back to that. And thanks again for always being so gracious with your time. And a great update, and particularly in a time, again, where we've had some gaps in data. So to fill in some of the blanks for people who are looking at their investment portfolio and just thinking about how they manage their personal affairs, personal finances, it really was a fantastic look back and look forward on where we're going. So thanks again.

Good. My pleasure. Happy holidays, everybody.