The Canadian economy notched a blockbuster month of job creation in January, an expansion that sent shudders through financial markets as investors reassess the path of interest rates.
The labour market added 150,000 positions last month, after a gain of roughly 69,000 jobs in December, Statistics Canada said in a report published Friday. Financial analysts were expecting an increase of 15,000. The unemployment rate held steady at 5 per cent.
Monthly unemployment rate in Canada
0246810121416%201820192020202120225.9
THE GLOBE AND MAIL, SOURCE: STATISTICS CANADA
| date |
rate |
| 2018-01-01 |
5.9 |
| 2018-02-01 |
6 |
| 2018-03-01 |
5.8 |
| 2018-04-01 |
5.8 |
| 2018-05-01 |
5.9 |
| 2018-06-01 |
6 |
| 2018-07-01 |
5.9 |
| 2018-08-01 |
6 |
| 2018-09-01 |
5.8 |
| 2018-10-01 |
5.7 |
| 2018-11-01 |
5.7 |
| 2018-12-01 |
5.7 |
| 2019-01-01 |
5.7 |
| 2019-02-01 |
5.8 |
| 2019-03-01 |
5.9 |
| 2019-04-01 |
5.7 |
| 2019-05-01 |
5.4 |
| 2019-06-01 |
5.6 |
| 2019-07-01 |
5.8 |
| 2019-08-01 |
5.8 |
| 2019-09-01 |
5.6 |
| 2019-10-01 |
5.6 |
| 2019-11-01 |
5.9 |
| 2019-12-01 |
5.6 |
| 2020-01-01 |
5.5 |
| 2020-02-01 |
5.7 |
| 2020-03-01 |
8.4 |
| 2020-04-01 |
13.6 |
| 2020-05-01 |
14.1 |
| 2020-06-01 |
12.4 |
| 2020-07-01 |
11 |
| 2020-08-01 |
10.2 |
| 2020-09-01 |
9.2 |
| 2020-10-01 |
9 |
| 2020-11-01 |
8.7 |
| 2020-12-01 |
8.9 |
| 2021-01-01 |
9.2 |
| 2021-02-01 |
8.5 |
| 2021-03-01 |
7.6 |
| 2021-04-01 |
8.2 |
| 2021-05-01 |
8.2 |
| 2021-06-01 |
7.8 |
| 2021-07-01 |
7.5 |
| 2021-08-01 |
7.2 |
| 2021-09-01 |
7.1 |
| 2021-10-01 |
6.6 |
| 2021-11-01 |
6.2 |
| 2021-12-01 |
6 |
| 2022-01-01 |
6.5 |
| 2022-02-01 |
5.4 |
| 2022-03-01 |
5.3 |
| 2022-04-01 |
5.3 |
| 2022-05-01 |
5.2 |
| 2022-06-01 |
4.9 |
| 2022-07-01 |
4.9 |
| 2022-08-01 |
5.3 |
| 2022-09-01 |
5.2 |
| 2022-10-01 |
5.2 |
| 2022-11-01 |
5.1 |
| 2022-12-01 |
5 |
| 2023-01-01 |
5 |
MONTHLY UNEMPLOYMENT RATE IN CANADA
The United States reported last week a gain of 517,000 positions in January, an outsized increase that also surprised analysts.
The recent run of upbeat data points to a resilient economy that is managing to defy expectations by avoiding a recession. However, that underlying strength could force the Bank of Canada to continue raising interest rates – or keep them higher for longer – to get inflation under control.
After Friday’s report, traders of interest-rate swaps were pricing in a benchmark interest rate of 4.5 per cent at year’s end – unchanged from the current level. In recent weeks, they had been pricing in one or two rate cuts of a quarter-percentage-point later this year. (Bank of Canada Governor Tiff Macklem said earlier this week that it was “far too early” to think about cutting interest rates.)
Market expectations are constantly changing, and these views of future interest rates could be wrong. However, the shift is a sign that investors think interest rates will need to remain at elevated levels for longer to subdue inflation, given the underlying strength in the economy.
“If you’re data-dependent and you see 150,000 jobs created, it’s going to tilt you in a more hawkish direction,” said Andrew Grantham, senior economist at CIBC Capital Markets, a reference to more restrictive monetary policies.
However, “data in Canada can be very volatile on a month-to-month basis,” so the Bank of Canada won’t be “obliged to react to any one data release, no matter how strong it was.”
Friday’s report showed strength in various parts of the labour market. Jobs with full-time hours increased by 121,000 in January, while the private sector drove a gain of 115,000 positions.
After several months of losses, retail and wholesale trade jumped by 59,000 jobs, the largest gain by industry. Health care and social assistance rose by 40,000 positions.
The labour market is drawing plenty of new participants. In January, an additional 153,000 people joined the labour force – meaning, they either took jobs or are actively looking for one. The participation rate is increasing in most major demographic groups.
Canada’s population is growing quickly, which is helping to expand the supply of labour. However, the labour force is growing at a quicker pace than the population, indicating that many people are being coaxed into jobs. For example, Statscan noted that mothers of young children have had a big increase in their employment rate over the past year.
From the Bank of Canada’s perspective, the rapid expansion in available workers is a hopeful sign, because it allows companies to find employees, but without a further tightening of labour market conditions that puts upward pressure on wages, Mr. Grantham said.
“The potential of the economy may be higher than what people anticipated. And that means you don’t necessarily need to slow the economy very much, or at least you don’t need to have a recession, to get inflation back to target,” he said.
By now, many economists projected that Canada would be mired in the early stages of a mild recession. The Bank of Canada said that growth would stall over the first half of 2023. Instead, Friday’s report suggests the economy is continuing to chug along with positive growth, at least for now.
Several analysts said Friday that the Bank of Canada was unlikely to overreact to a blowout gain in employment when it makes its next rate decision on March 8.
At its last announcement, on Jan. 25, the central bank raised its key interest rate to 4.5 per cent but said that it expects to hold off on further rate hikes. Bank officials said this was a “conditional pause,” and that they could still raise rates if there was an “accumulation of evidence” that inflation wasn’t coming down and the economy was proving stronger than expected.
“Today’s report is sure to raise eyebrows at the Bank of Canada,” James Orlando, director and senior economist at Toronto-Dominion Bank, said in a note to clients. “The Bank won’t adjust course after one report, but it will be closely watching to see if this trend of massive job gains continues.”
Average hourly wages rose 4.5 per cent over the past year, down from 4.8 per cent in December. However, the year-over-year comparison was partly a reflection of higher wages in January, 2022, when many lower-paid service workers were temporarily laid off as the Omicron variant of COVID-19 led to a spike of infections.
Mr. Macklem has said that unemployment will need to rise and wage growth will need to ease to bring inflation under control.
“The labour market is very tight. It can’t stay this tight,” Mr. Macklem said at a press conference earlier this week. “If the labour market stays this tight, we’re not going to get back to 2-per-cent inflation.”
With a report from Mark Rendell
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