Canada's blockbuster job numbers suggest economy still running hot

Statistics Canada says the Canadian economy added 108,000 jobs in October, reversing much of the losses observed in recent months. Photo by Postmedia

Canadian employers added thousands more jobs than expected in October and wage increases continued to accelerate, a sign of growth that could complicate the central bank’s efforts to cool the economy.

Employment rose by 108,000 last month, recouping a summer of losses, while the unemployment rate held steady from the previous month at 5.2 per cent, Statistics Canada reported Friday. A Bloomberg survey showed economists had expected a gain of 10,000 positions with the unemployment rate ticking up 0.1 percentage points.

“The … surge in employment in October makes a mockery of claims that the economy is on the cusp of a recession,” Stephen Brown, a senior economist at Capital Economics, wrote in a client note after the data release. “With wage growth accelerating sharply despite favourable base effects, that means the Bank of Canada may need to raise interest rates by more than it has recently suggested.”Here’s what you need to know:

The numbers

Private-sector industries accounted for most of the job gains, which came in the form of full-time positions, and the number of private-sector employees rose for the first time since March, Statistics Canada said. Construction, manufacturing, professional, scientific and technical services and food services and hotel industries led the charge in gains, indicating job growth was spread broadly across the economy.

Construction added 25,000 jobs in October, but employment was virtually unchanged due to losses in the sector over the summer. Manufacturing jobs rose by 24,000, offsetting the decline of 28,000 in September. The professional, scientific and technical sectors and food and accommodation added 18,000 workers each.

The number of people working in wholesale and retail trade dropped by 20,000, with the industry last seeing growth in May. “That probably reflects the shift in consumption towards services following the pandemic,” Brown wrote.Overall job gains boosted the labour force, which was up 110,000 from September, while the total number of unemployed people was little changed, the agency said. The labour force participation rate grew 0.2 percentage points to 64.9 per cent in October.

Employment for immigrants, which Statistics Canada counts as people who hold or once held landed immigrant or permanent resident status, reached a record high last month based on data collected since 2006. The immigrant employment rate stood at 62.2 per cent.

“Population growth surged as a result of immigration, which meant that businesses had more opportunities to alleviate labour shortages. As a result, despite the hiring spree, the unemployment rate remained steady at 5.2 per cent,” Royce Mendes, head of macro strategy as Desjardins Capital Markets, wrote in a note.Wage growth continued to accelerate in October, the data show. Average hourly wages were up 5.6 per cent from a year earlier and have remained above five per cent since June.

“Despite average wages growing by more than five per cent on a year-over-year basis in each of the past five months, they have not kept pace with inflation, which was 6.9 per cent in September, contributing to concerns about affordability and the cost of living for many Canadians,” the agency said in its report.

A higher number of Canadians aged 15 years and older reported living in a household finding it “difficult” or “very difficult” to meet financial needs, such as paying for transportation, housing, food and other necessities. More than one-third, or 35.3 per cent, of workers in October reported difficulties compared to over one-fifth, 20.4 per cent, in October 2020.

The backdrop

The surprise numbers throw a wrench into forecasters’ assumptions that Canada’s economy, particularly the tight labour market, is cooling. However, economists consider the labour force survey a more volatile measure of the jobs market, and are often cautious about the numbers.

“The Canadian labour market clearly still has some steam left to it,” Toronto-Dominion Bank economist Rishi Sondhi wrote in a note to clients. “And, the gain in hours worked suggest that economic growth got off to a good start to begin the fourth quarter after decelerating in Q3.”

Hours worked are an indication of productivity, which can boost or hinder economic growth. Complete data for the third quarter isn’t available yet, but Statistics Canada’s preliminary estimates suggest GDP growth slowed in the second quarter to 1.5 per cent, annualized, compared to 3.3 per cent, annualized. Economists have taken that as a sign the Bank of Canada’s interest rate hikes are working to cool the economy.October’s jobs report showed hours worked increased 0.7 per cent after declining 0.6 per cent in September, and on a yearly basis, hours worked were up 2.2 per cent compared to the same month last year. That suggests the fourth quarter was off to a “strong start,” wrote Douglas Porter, chief economist at Bank of Montreal, in a note. “The big bounce in hours worked in October leave them up 1.3 per cent at annual rates versus the Q3 level, consistent with at least moderate GDP growth this quarter.”

Bottom line for central bank watchers

Friday’s jobs report suggests Canada’s tight labour market has gained more strength after a summer of weaker growth. Wages also remain on an upward trajectory, though they’re still outpaced by increases in the consumer price index (CPI), a gauge of inflation.

“The strength of employment and wage growth could undermine the Bank (of Canada’s) belief that it has done enough to ensure that CPI inflation returns to target and will therefore increase speculation that the Bank will have to enact another 50 bp hike in December,” Brown wrote.

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