Fresh U.S. jobs data is reinforcing expectations that the labour market is stabilizing after a prolonged slowdown, while inflation and geopolitical risks continue to cloud the outlook for central banks and consumers.
BNN Bloomberg spoke with Sonu Varghese, chief macro strategist at Carson Group, about what stronger U.S. payroll growth, slowing Canadian employment, elevated inflation and AI-driven investment trends could mean for markets and monetary policy.
Key Takeaways
- U.S. employers added 115,000 jobs in April, marking the first back-to-back monthly payroll gains in nearly a year and signalling a steadier labour market.
- The U.S. unemployment rate held at 4.3 per cent, while Canada lost 18,000 jobs in April and saw unemployment rise to 6.9 per cent.
- Inflation continues to outpace wage growth in the U.S., squeezing household purchasing power even as consumer spending remains resilient.
- The U.S. Federal Reserve is expected to keep interest rates unchanged despite elevated inflation and relatively healthy labour market conditions.
- Artificial intelligence-related capital spending continues to drive technology-sector growth, even as some large tech firms reduce headcount.
Read the full transcript below:
LINDSAY: Canada lost 18,000 jobs in April and the unemployment rate rose to 6.9 per cent. But in the U.S., employers added 115,000 jobs in April following an initial surge in March, while the unemployment rate held steady at 4.3 per cent. Here to tell us more is Sonu Varghese, chief macro strategist at Carson Group. It’s great to have you join us. Thanks so much.
SONU: Thank you for having me.
LINDSAY: Let’s start with the U.S. numbers because we haven’t really talked about that yet this morning. It looks like a pretty rosy picture here. What exactly stood out to you in this report?
SONU: I think just the stabilization of the labour market. Coming into this year, everyone was worried about downside risk for the labour market. We were always in the camp that the labour market probably looked better than the headline payroll numbers were suggesting because payrolls have been going up and down for 10 consecutive months. Now we’ve got two back-to-back months with positive payroll gains.
Over the last three months, payrolls averaged about 48,000. Normally that wouldn’t be great, but with population growth really stalling, especially amid the immigration collapse, the economy doesn’t need to create as many jobs to keep the unemployment rate steady. The unemployment rate is at a historically low level of 4.3 per cent, so the job market looks fairly healthy right now.
LINDSAY: That’s very interesting. I was going to ask you what this signals about the job market more broadly because, as you say, there are fewer jobs and fewer people, and that’s why we’re seeing these numbers today.
SONU: Exactly. Another metric I like to keep track of is the prime-age, 25-to-54 employment-to-population ratio. That’s at 80.7 per cent. That is the highest we’ve seen at any point over the last 25 years, except for a short period in 2024. It’s higher than at any point in the 2000s expansion or even the 2010s expansion.
Essentially, more people in their prime working-age years are working now than at any point during the last two expansions. That tells you the labour market is holding up, and despite low job growth, things are probably looking okay.
LINDSAY: On the flip side, maybe not the same picture in Canada. We lost more than 17,000 jobs in April. What does this say about the Canadian job market at the moment?
SONU: Canada has lost close to 112,000 jobs year to date. That is the steepest four-month drop since January 2021. The unemployment rate is at a six-month high of 6.9 per cent.
Canada’s economy is highly leveraged to exports. More than one-third of GDP comes from exports. With all the tariff noise and trade uncertainty with the U.S. — Canada’s biggest export partner — it’s no surprise that parts of the Canadian economy are getting hit.
On the other side, the crisis in the Middle East is raising oil prices, which is good for parts of the Canadian economy, especially the petroleum sector. But that also leads to higher inflation. Canada exports more than just oil and petroleum products. It exports cars, consumer goods and many other products. The potential slowing of the global economy, if the Middle East crisis continues, is probably weighing on the Canadian economy and labour market too.
LINDSAY: With that in mind, would rising gas prices influence unemployment rates moving forward in both countries?
SONU: I think it hits real incomes. From a U.S. perspective, wages are growing okay. Wages are growing close to trend and close to the pace we saw before the pandemic, which points to a pretty strong labour market.
The problem is inflation is much higher. Inflation is running above three per cent, maybe close to four per cent now with higher energy prices, and that squeezes real incomes.
For now, consumption is continuing, especially nominal consumption, because consumers are saving less. That’s essentially how they’re funding consumption. That’s why consumption is still strong, and we see that continuing for the time being, especially with markets hitting all-time highs. As you pointed out at the top, there’s also a wealth effect. People feel like they can afford to save a little less because their portfolios are doing better.
LINDSAY: Going back to the U.S., what are you seeing in U.S. GDP right now?
SONU: Here’s where there’s a difference between real GDP growth and nominal GDP growth. Real GDP growth is probably running below trend. Let’s say trend growth is about 2.5 to 2.7 per cent. You’re seeing something closer to two per cent. That’s not a big surprise because inflation is weighing on real activity.
But nominal GDP growth is running above trend. Trend is about four per cent, and nominal GDP growth is running about five to six per cent now. That’s what actually matters for the stock market because revenues and profits come from nominal GDP growth.
If you look at earnings season, companies are clocking in average earnings growth of about 27 per cent year over year. That’s partly the result of strong nominal GDP growth, but also margin expansion.
LINDSAY: Where do you think that points in terms of decisions on rate cuts, rate hikes or holding rates steady moving forward?
SONU: With a fairly healthy labour market in the U.S. but elevated and rising inflation, normally we’d be talking about potential rate hikes.
But with incoming chair Kevin Warsh, I think the Fed is going to stay steady. They’re not going to hike rates, and they’re not going to cut rates either. We’ve been in the camp at Carson Group saying we don’t expect rate cuts this year, but at the same time we aren’t expecting rate hikes either.
What does that mean? It means while inflation stays elevated, the Fed stays easy. That’s effectively looser policy and another tailwind for equity markets.
LINDSAY: Another key question going forward — and you touched on this earlier — is whether the Iran war, if it continues, will start to weigh on hiring in both Canada and the U.S.?
SONU: I think ultimately it will, especially if inflation continues to weigh on real incomes. The longer the crisis goes on, the more likely it is that inflation stays elevated.
Then I could see a situation where central banks in both countries start to worry about inflation expectations getting out of hand, and we could potentially see rate hikes. The path toward continued job losses in the U.S., with the unemployment rate moving higher, likely runs through the Federal Reserve hiking rates.
That’s the danger if the crisis continues much longer and oil prices rise to something like US$120 a barrel and stay there.
LINDSAY: Lastly, at the same time, big tech companies like Meta and Microsoft are reducing headcount.
SONU: They are, partly because they’re investing more. They’re spending so much on AI-related capital expenditures. You see that reflected in cash flow and in headcount reductions as well.
I don’t think it’s solely because AI is replacing workers. I think it’s more a matter of companies spending more money on capital expenditures because that’s where they believe growth is and where they have to compete.
That’s also why we are seeing profits rise. One company’s spending is another company’s profits, and that’s boosting earnings, especially in the technology sector.
LINDSAY: So interesting to get the story behind these numbers. Sonu Varghese, chief macro strategist at Carson Group, appreciate you joining us today. Thank you.
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This BNN Bloomberg summary and transcript of the May 8, 2026 interview with Sonu Varghese are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
