02:32 PM EDT, 05/24/2024 (MT Newswires) -- According to Avery Shenfeld in his regular 'The Week Ahead' note, CIBC was already calling for a June rate cut by the Bank of Canada, before it got "even better news than it was hoping for" in the past week's CPI print. So why, then, Shenfeld asked, are markets putting only 60% odds on that rate cut, and little credence on the prospect for back-to-back cuts in June and July?

Those odds won't impact the BoC's decisions, he said, but he added it behooves him to consider where the skeptics' views are coming from.

Shenfeld writes: "Judging by discussions with clients, the doubts may harken back to the decent GDP growth we expect in the upcoming week's data for Q1, and to thoughts that we might get more of the same over the spring. Whether that's the right call comes down to who do you believe, or rather, which teams at Statistics Canada do you put your faith in right now.

"Barring revisions next week, Q1 activity seemed to start off hot, but end up not, with tepid estimates for February and March GDP growth. So if you believe the folks running the national accounts, we're looking at limited momentum heading into Q2, and yet another reason for the Bank of Canada to deliver a June rate cut.

"Others might be eyeing what those running the Labour Force Survey had to say about April, who reported an outsized 90 thousand jobs gain. On our part, we'll hold our judgement about April, and not only because the LFS is based on a household sample rather than census of employers like the US nonfarm payrolls.

"The issue with the LFS, which showed up in spades in April, is that the survey only estimates the percentage of the 15-year and older population that has a job. That showed no improvement from March, and the jobless rate also held steady at 6.1%. To translate the sample into a total employment figure, StatsCan grosses up each month's survey to represent the total working-age population. If, as we saw in April, there's a massive 112K jump in the population, a constant employment rate would still represent a huge leap in the number of Canadians who are working.

"The trouble is that a full population census is undertaken only every five years. Moreover, the LFS comes out ahead of even the quarterly population estimates that StatsCan creates based on incoming news on births, deaths, and immigration, and even these often go off track from what either annual data, or eventually the census, reveals. When they do, the LFS is forced to play catch-up by tacking on either faster or slower population gains to make the grand totals line up better.

"That might well be behind the population surge, and therefore, the estimated LFS employment gains in April. The LFS population estimate for July 2023 for those 15 and over was nearly 1.4 million below the annual count for that age group for 2023, which is based on a July level. The result is that those running the LFS are phasing in higher population numbers in recent reports, but these could well be counting job and headcount gains that took place amidst a record population surge over the prior year.

"Those involved in measuring monthly GDP by industry do rely on employment and hours worked measures for sectors lacking data on production or revenues. But importantly, they eschew the LFS figures in favour of Canada's payrolls data. We don't yet have for those payrolls figures for March, but February registered a nearly 18K drop in employment.

"We'll get fresh monthly GDP data in the week ahead, and we'll put a lot more weight on those data in assessing whether there is indeed any serious momentum as of early Q2. Given how tame inflation seems to be running in the last four months, and that this is a central bank that puts its greatest focus on price stability, we would need to see a lot of vigor in per capita GDP to justify waiting any longer to provide a bit of interest rate relief. We doves need to keep the faith."

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