Hello and welcome to The Download. I'm your host Dave Richardson, and it is Jobs Friday. And when it's Jobs Friday in Canada and in the US, we bring on Canada's hardest working economist. He's got a job, and that is Eric Lascelles, Chief Economist at RBC Global Asset Management. Eric, how are you doing?

That's me. Hi, Dave, nice to talk to you. You and I were both traveling right across the country this weekend, yet I believe we did not see each other one time. It's sort of an unusual state of affairs, but so it is. The weather was good wherever we went though. We can't complain.

Yeah, I know you and your colleagues always seem to try and avoid bumping into me other than on the podcast. I know I'm a small dose person, so I understand.

Who's kidding who here, Dave? That was all on you. I would have been happy to talk at your conference, but other, I guess, more important people to talk with. That's fine though.

Yeah, no, just a little bit of an inside baseball here, and we do talk baseball sometimes as well when we have Eric on. But yes, people were quite disappointed at the conference I was hosting that you were not on the agenda, so we will not make that mistake again. But I was under the impression you were not available, so here we go. We're going to solve everything by having you here. As you uniquely can do it, you're going to summarize the jobs reports, Canada and the US, and then we're going to go a little bit broader and just get a pulse on where you think things are economically on a global level.

Okay, happy to. Why don't we start with the US and then we can tick over to Canada in a moment. And so here we are with the latest job numbers. These are for the month of April, I do believe. We're not through May just yet, as much as it's flying by at a shocking rate. And so 115,000 jobs created in the US, that was distinctly above consensus. We've had this conversation for a few months now. It sort of looks familiar to those of us who have been tracking these numbers for a number of years. But of course, actually, 100,000 to 200,000 has not been in practice the norm over the last year. And so anytime you're north of that, into that triple-digit territory, it's a pretty good report. And of course, the reason being there's less immigration, less population growth in the US, normal is kind of downshifted. But 115,000 is pretty strong. For context, the 6-month average is now 55,000. And so that's actually decent too. I think most of the estimates would say you need actually a little bit less than that just to maintain a steady labor market. So, holding together conservatively. Do note, of course, these numbers are coming in the middle of a war. Certainly not on US shores, obviously, but nevertheless we’re not seeing signs of weakness or caution or businesses pulling back, at least on the hiring front. And so we'll take that. As you might expect when you get a solid-looking number that's not exceptional in either direction, unemployment was unchanged. 4.3%, which is, we think, a pretty happy number. 4 to 4.5 is our sweet spot, we think. And so continuing to trend in there. If you want to be a bit of a nerd about it, you could say it actually went up 0.08 percentage points, or 8 basis points. And so it did get maybe a hair worse, but on the net, doing fine there. And if anything, unemployment has been essentially stable for a number of months now, down a touch, but ultimately stable. So doing fine there. Wages were up a little more, but ultimately nothing too remarkable on that front. Walk away and saying we are getting another indicator out of the US that this economy is doing fine, and it was doing reasonably well going into this war, and it has seemingly not lost a beat so far into it, which is sort of interesting.

As I've been listening to experts over the last few days at these different conferences that we're hosting, it just seems that we are in an odd equilibrium. The bond market seems to be pretty settled. The stock market's happy; it's going up, and we like that. As you say, from an employment perspective, not too hot, not too cool. It's the old Goldilocks economy, but with the backdrop of this war that still could create some unusual risks going forward or create some problems if it persists that could disrupt this. But it's odd that given all of the noise around, again, including a pretty significant war and shutdown of a significant amount of oil that gets out into the global economy, that things seem so calm and stable and stocks just continue to run.

It is an amazing thing. A couple of angles there. One is there is seemingly some level of confidence that a deal can be struck. There hasn't been, as we say these words, but it's conceivable that happens before too long, and so I think that's part of the perspective. I will note, and North America, of course, is among the least affected parts of the world by this war because the energy broadly isn't actually coming from there. It's sort of second-order knock-on type effects that are of any relevance here, and of course, the US and Canada are both net energy exporters, and that tempers the damage. I'll note, it's actually sort of remarkable, actually, even looking across Europe and Asia, you see manufacturing PMIs—which are pretty decent leading indicators, or at least proxies for what's up in the economy—are rising, not falling. We're all a bit pleasantly surprised, to be perfectly fair, but maybe not shocked that North America is proving somewhat resilient. Of course, one's thoughts naturally leap back to the 1970s and oil shocks and things like this. Since then, the global economy has become far less sensitive to the price of oil. In fact, we did some math recently. It is 62% less sensitive to the price of oil than it was in the 1970s, even in 2008. You may recall there was an oil price spike then, which really wasn't the story for the subsequent recession. That was a financial crisis, but it was in the mix. Actually, the global economy is about 20% less sensitive to oil even than then. That's not that long ago. It's not a surprise that we're dodging recessions and giant blows, but equally, I fully agree, we are pleasantly surprised with how resilient everything has been. Not to say that I'm a pessimist at all, I'm feeling still reasonably good. This isn't the forum for a talk about tailwinds, but you'll recall at the start of the year, we were talking about all the fiscal stimulus and the AI effects and things. Those are still real. That is still quite helpful. As this war drags on, and I guess it's a strange thing because here we are a month into effectively a ceasefire. And so in terms of the launching of munitions and things, other than a little flare-up recently, it did stop a month ago, and we're hopeful that can continue. But of course, the item of relevance is the Strait of Hormuz and access and so on. And of course, that hasn't reopened in any major way yet. And so I guess as we look at that, the rule of thumb would be that when you have an oil shock, it can be pretty contained in the price of oil or the price of gas and related items for several months. It does start to trickle its way into other things over a 3- to 6-month time frame. As I look at my watch here, we're 2 months and a week in or something like that. Not that there's a starting gun that fires on the first day of the third month, but equally, we do need to factor in a little bit of second-order effects. I must confess, of course, we've revised our inflation forecast higher just to reflect this particular shock, but we're equally assuming a significant but incomplete walk-down later. We have allowed for a little bit of a bleed-through to food prices and a few other things. Unfortunately, there are some extra consequences that maybe aren't quite visible yet, and we should probably assume they will come.

Yeah, as you say, this is a ceasefire, but the oil's not getting out through the strait, and we still don't have a final resolution. There's always talk about it, but it just doesn't ever seem to happen week after week after week. But even when we look at the price of oil. We get the quote on the price of oil for the current futures contract. In this case, I think we're still on the May contract. But if I look 12 months out or even towards the end of this year, December, January contracts, those contracts are available all the way out month after month. People are planning to get their supply of oil. This is real oil moving around when we talk about this. Those prices have stayed really surprisingly stable. The December, January contract has sat between $70, $75 a barrel. You go out to May of next year, you're down around $70 a barrel. It's kind of amazing, particularly given the early reaction. You get February 28th and the first week of March, and you see what happens in markets, what happens with bond yield. Things are moving all around. But since then, it's just been stable. I guess it is reflective of, as you say, you got to think about where you're coming in. Inflation was a bit of a problem, but rates are relatively low. Things were pretty good fundamentally. So like you say, you get a bit of a shock, it's probably going to work out, and then we just move on. And that seems to be the way it's played out.

Yeah one thing I think that's been underestimated—less relevant to North America, more relevant really to much of the rest of the world—is governments have done a lot of work in many countries to reduce the inflation damage, to reduce the growth damage by absorbing it themselves. And Canada did this. Of course, Canada has temporarily cut the fuel tax. And so actually a lot of countries have done it. US is almost the exception in not doing any of that. But when we look around the world, that is precisely what much of Europe has done and a fair swath of Asia. Asia and some Asian countries and more, I should say, have actually instituted fuel price caps. I guess the government is subsidizing the rest. I'm not clear of the mechanics, but China's done that, and I believe India's done that, Mexico's done that, I believe South Korea has done that as well. And so not to say the problem goes away. It kind of mutates, but it no longer shows up in a jump-in inflation to the same extent or a hit to growth. It shows up as a bigger government deficit. Essentially, they're delivering accidental fiscal stimulus. And so I wouldn't suggest it's an outright boost on growth, but it's offsetting what would have been a drag. I think that helps to explain why we're not seeing more pain in the more adversely affected markets as well. It certainly makes you worry a little bit about fiscal situations over the long run, but of course that's been a constant refrain. Between the world recognizing, hey, it's a more dangerous world, military spending is going up in response, recognizing it's important to secure stable, reliable resources around the world. Great for Canada, by the way. I think that priority is going up and you're seeing some extra investments in that space. I'd seen indeed some Canadian companies that actually expanded their capacity to produce aviation fuel, and that's proving to be a very on-point decision. That is particularly acutely short. Then, of course, on top of that, all these subsidies. There's a real little fiscal boost happening right now that might help to explain why the economies are still moving ahead.

Yeah, and I've been out again, not just hosting these conferences, but out with a lot of different investors and I do a lot of work with realtors, real estate professionals. And we get into the discussion in the Q&A period after the presentation and get into how this is an interesting opportunity for Canada. So you think back to the global financial crisis where the global financial system was in peril, but the shining light was the Canadian banking system. All biases aside, I think this is a fair statement, which made Canada a more important player from a global perspective in the financial world. As you accurately point out, this is one where it's highlighted the security of your energy supplier and the stability and the consistency of your energy supplier. Not just energy. Fertilizer, food, whatever it might be. Your partnerships. I think COVID highlighted that as well. Canada, again, looks like a shining star. We're there. We've got the stuff you want. It really does create some opportunities for Canada going forward. That's kind of exciting. If we take advantage of it, and that's a big if, right?

Yeah, that's right. I think absolutely there are reasons to be more optimistic. Not to get partisan in any way, but the policy mix at the federal level has become somewhat friendlier to pursuing some of these projects, we think. I'm sure you could argue it could be even more so, but there's been a real shift in that direction. So the proof is in the pudding and so let's see. These things take a few years to really get cooking. Do you cook pudding? I guess you do. And so in any event, let's see the extent to which these projects actually get going, but I'm inclined to think there's something real there. We have been, if anything, revising up our forecast for Canada a little bit beyond 2026, I should emphasize, given the bit of chaos right now and uncertainty. But yeah, that's a real story and it's an exciting one. I can mention, by the way—and maybe this is the opportunity to switch over to Canada for a quick moment on those job numbers—but Q1 GDP came out and Canada is reliably achieving positive productivity growth numbers again, which you may recall was not a thing for several years to everyone's enormous frustration.

I know that has been a big concern of you, the productivity growth. Let's keep on this track of talking positively about our beloved Canada, but let's just throw in the one negative, which is the jobs numbers are not particularly exciting out of Canada the last few months, including today.

No, that is true. I guess here's where I should jump in on that front. We did see an outright drop in Canada, and that has been more familiar than not. So 17,700 jobs lost in the month of April. Not pleased about that. Year to date, this is an economy now that has lost some jobs. In fact, 3 of the last 4 months have seen declines. But it is important to level set on this though, just because Canada has a shrinking population right now. It's also aging, by the way. On both counts, really, normal is arguably a slight negative. I can't say it's exactly minus 17,000, but if you've spent any time tracking Canadian job numbers, they're pretty choppy. We try to look to the trend. Really, the way we're viewing this is, it still looks a little bit weak versus steady state, I would say, given a slightly declining population. However, the thing to remember is, if you go back to the second half of last year, we had mysteriously strong job numbers at the time. It really didn't make a whole lot of sense in the context of trade uncertainty and what we could see in terms of real activity and so on. We're always a little bit skeptical. It feels like we're giving that back, if that makes sense. Looking through a longer lens, here we are now, I believe, with a 6.9% unemployment rate. For a moment there, it was a couple of ticks below, and we felt pretty good about it, but this is really just back to where we were a number of months ago. I think it still is reflective of the economy. You've got one that is moving forward and indeed achieving positive productivity growth, which is critical when you've got no job growth. That's important, but with a little bit of slack still. I think when you look at Canada, and not to turn this immediately to the Bank of Canada, but of course, Canada is one of the few countries where in theory, the economy goes a little faster with an oil shock, and of course, inflation goes a little higher, and you're starting from a position of monetary stimulus. The argument for a little bit of hiking is probably stronger in Canada than it is in quite a number of markets, but I think the counterpoint or the argument that it's hardly an immediate and urgent affair is just that there's a little bit of slack to start with, if that makes sense. I do want to say, notwithstanding this number, I like what I'm seeing in a lot of the Canadian economic numbers. Business Outlook Survey turned more favorable in terms of CapEx plans and these sorts of things. Not long ago, Q1 GDP rose almost 2% annualized. I know it doesn't sound like a lot, but when you don't have population growth, that's good productivity growth, as I've mentioned. Even just summarizing it into one smushy lump, and you look at the Citibank Data Change Index, which is covered for every country, it's about as positive as we've seen going back quite some distance. Feels pretty good to me. We're all waiting with bated breath for more clarity on the trade file. I think, unfortunately, we have to wait a little bit longer for that, but, when we can get clarity there and we feel okay about a deal, we don't think it's likely to get a whole lot worse than the current arrangement, maybe even a bit better. That feels like a time when you can start to unleash CapEx and businesses can say, okay, we know we will have access to the US market, and so let's go.

Yeah, and you need a little bit of this. Some of the stuff that's being done policy-wise is stuff that takes a while to really get going. And you've created maybe a little bit of a different environment. You need that capital to flow in as well. And there's a lot of places for capital to go around the world, and capital can move around very quickly. And so if Canada can get its fair share of capital from around the world you still have that environment. And I would think you look at the stock market here in Canada, which has outperformed the US market, I think, for the last 20 months now in total. Somebody's noticing the long nose of the stock market, as Stu Kedwell says, sniffed out several months ago that things are going to improve in Canada. Maybe we're just about to see some of those real numbers. As you say, your projections are going up more longer term than in the near term, but a little bit more of a positive view.

Yeah, absolutely. Things are going okay, we think. Let's hope that continues.

Absolutely. So for all of us in Canada, we just got to work as hard as Eric Lascelles. We're getting more productive. So if we put in the hours—he's working 25 hours a day—Canadian economy will boom. So Eric thanks for the quick update today. I got to run to the airport, I'm going to miss my flight. Air Canada moved my flight back a half an hour, so I'm a little tighter than I expected. But I will be back in Toronto next week, so I'm looking forward. I'm going to come and say hi, since we didn't get a chance to see each other this week on the road.

Dave, watch Marty Supreme on the plane. It was good.

I'm going to do that. More tips from Eric Lascelles. Eric, we'll talk to you in a couple of weeks.

Thanks everybody, bye.