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
DATA
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.”
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.
