Bank towers are shown from Bay Street in Toronto’s financial district on June 16, 2010.Adrien Veczan/The Canadian Press
Canadian wage growth picked up in February and surpassed 5 per cent, a potential setback for the Bank of Canada as it tries to subdue inflation and a rollicking labour market.
On an annual basis, average hourly wages rose 5.4 per cent to $33.16, an acceleration from the 4.5-per-cent pace in January, Statistics Canada said Friday in a report. Financial analysts were expecting wage growth of 5.1 per cent. To an extent, the numbers were influenced by the comparison to February, 2022, when lower-paid service workers were rehired after COVID-19 lockdowns, pushing down average pay that month.
While workers are benefiting from tight labour market conditions, Bank of Canada officials have repeatedly said that wage growth will need to subside and unemployment will need to rise for the central bank to tamp down inflation, last measured at a 5.9-per-cent annual rate.
Thus far in 2023, the labour market is forging ahead. Employers added around 22,000 positions in February, according to Friday’s report, after a blockbuster gain of 150,000 jobs in January. The unemployment rate held steady at 5 per cent, close to an all-time low.
“Arriving on the heels of the January jobs jamboree, this result is far too strong for the BoC’s comfort,” Bank of Montreal BMO-T chief economist Doug Porter said in a client note. “There simply is no sign that the labour market is succumbing whatsoever to the rapid-fire tightening of the past year.”
Earlier this week, the Bank of Canada held its policy rate at 4.5 per cent, a pause that it had telegraphed after eight consecutive rate hikes that began in March, 2022. Still, the central bank has kept the door open to additional rate increases if inflation doesn’t ease as expected.
The bank’s latest Monetary Policy Report, published in January, said that wage growth “appears to have plateaued” at between 4 per cent and 5 per cent and was no longer rising.
There are several ways of measuring wage growth across multiple Statscan reports. They generally show that wages are rising at more than 4 per cent on an annual basis.
Bank of Canada officials have argued that the current pace of wage growth is not compatible with bringing inflation back to the 2-per-cent target, unless there is strong pickup in productivity.
However, labour productivity – as measured by real gross domestic product per hour worked – has fallen for three consecutive quarters. Put another way, employees are producing fewer goods and services per hour of work. To compensate for less output and rising labour costs, many companies will charge their customers higher prices.
“Productivity growth is a good thing for the economy because it allows businesses to pay for higher wages,” Carolyn Rogers, senior deputy governor at the central bank, explained on Thursday in a speech. “If we continue to see the above-average wage growth that we’ve been seeing in Canada without stronger growth in productivity, it will be difficult to bring inflation all the way down to 2 per cent.”
Ms. Rogers later added: “Productivity isn’t trending in the right direction so far.”
The central bank has said it will need to see an “accumulation of evidence” of an overheating economy before it raises rates again. Economists and investors generally don’t think that threshold has been met.
Interest rate swaps, which capture market expectations of future rate decisions, are indicating that the benchmark interest rate will remain at 4.5 per cent through the end of the year. Traders are placing slimmer odds on rate hikes than they were on Thursday. BMO’s Mr. Porter tied the shift in interest-rate expectations to the collapse of Silicon Valley Bank and broader fears that have swept through financial markets this week.
Also on Friday, the U.S. reported a gain of 311,000 jobs in February, which was higher than analyst estimates. Wage growth slowed on a monthly basis.
In Canada, full-time employment rose by around 31,000 positions in February, helping to boost the number of hours worked that month by 0.6 per cent. The labour data suggest Canada is heading for positive economic growth in the first quarter; last year, many analysts on Bay Street had predicted a recession would be under way by now.
“It’s still a question of whether we have a formal recession or not,” said Toronto-Dominion Bank TD-T chief economist Beata Caranci. She noted, however, that “it’s really hard to imagine a situation where you can get inflation floating back down to 2 per cent with the unemployment rate being this low.”
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
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