‘Zero signs of economic stress’: What economists say about the blockbuster jobs report

Of the gain, 121,000 were full-time positions and 28,900 were part-time. The unemployment rate held steady at five per cent and the participation rate rose to 65.7 per cent from 65 per cent in December, the national data agency said.

It’s the second month in a row the strength of the employment market has taken forecasters by surprise. The economy, in December reported a gain of 104,000 positions, blowing past forecasts for an increase of 5,000 additional positions, although, the  report was “heavily revised downward” by 33,000 positions, said Jay Zhao-Murray, an FX market analyst with Monex Canada, in an email, “and we may get a repeat of that scenario this month.”

Based on the latest jobs numbers, some economists say markets could start pricing in another rate hike. The Bank of Canada indicated last month that it would likely pause its hiking campaign if economic data over the next few months tracked along its expectations.

Here’s what economists are saying about the jobs numbers, what they mean for a potential soft-landing for the economy and interest rates.

James Orlando, TD Economics

“It was a blowout report for the Canadian labour market. The 150,000 jobs gain is one thing, but the fact that gains were concentrated in full-time jobs in the private sector, alongside people working more hours, makes this an even more impressive report. Although the seasonal adjustment should be called into question, the sheer size of this print points to a further boost to consumer spending and overall GDP to start the year.

Andrew Grantham, CIBC Economics

“Another month, another blockbuster job print for the Canadian economy …. Unlike during the latter part of last year, the strong job figure was also accompanied by an increase in hours worked (+0.8 per cent) as sickness-related absenteeism was closer to seasonal norms, which is a positive for GDP and suggests that the economy certainly isn’t on the verge of recession.

Stephen Brown, Capital Economics

“The surge in employment and strong rise in hours worked in January suggest that GDP growth will be stronger than we anticipated this quarter. However, the decline in wage growth means that unexpected strength is unlikely to prompt the Bank of Canada to switch back to hiking mode.

“Despite the bumper gain, the labour market data are unlikely to move the needle much for monetary policy, not least because wage growth declined to 4.5 per cent year over, from a downwardly revised 4.7 per cent — it was previously estimated at 5.2 per cent in December. Nevertheless, together with the 0.8 per cent month over month rise in hours worked last month, the data pour cold water on the idea that the economy is on the cusp of recession and suggest we need to revise up our forecast of a 1.5 per cent annualized decline in GDP this quarter.”

Douglas Porter, BMO Economics

“Canadian employment soared 150,000 in January, the largest non-pandemic monthly rise on record and a loud echo of the rollicking U.S. jobs report a week ago. Even in percentage terms, the 0.75 per cent month over month gain is larger than anything seen in the 40 years before COVID.

“Note that actual, or non-seasonally adjusted, employment fell by 125,000 in January — prior to the pandemic, a “normal” January would see a job loss of 250,000-to-300,000 in unadjusted terms. So, evidently, there simply were far, far fewer layoffs than in a normal year at the start of 2023. Instead of an actual hiring boom, what we instead saw last month was a layoff freeze, given how hard it is to find workers in the current environment. To be clear, this is not to dismiss the strength in the headline number; the data are seasonally adjusted for a reason. It’s more to explain what the underlying story may be in this complicated backdrop.

“Bottom Line: One always has to take care when reading a Canadian employment report — for example, the prior month’s huge gain was itself revised down (earlier) by more than 30,000 jobs. Still, even if there are some misgivings about the massive headline gain, the labour market is sending precisely zero signs of economic stress. For the Bank of Canada, the strong report must make them at least a tad nervous about their freshly-minted pause — we said the bar for any move would be very high, but the employment gain is pretty towering indeed. This is actually the last jobs report the Bank will see before it next decides in March, but their upcoming decisions will largely be determined by inflation, and the employment data may prove to be just loud noise, provided inflation continues to ebb.”

Charles St-Arnaud, Alberta Central

“Today’s Labour Force Survey data suggest the labour market in Canada remains strong and resilient. The low unemployment rate continues to signal that the labour market remains very tight, something the Bank of Canada is closely monitoring. Moreover, the report also shows that wage growth, while slowing, remains robust, with average wages increasing by 4.2 per cent year over year.

“A robust labour market is a challenge for the Bank of Canada. As we have explained on numerous occasions, the bank needs to slow growth and create some excess capacity in the economy to fight inflation. This will likely lead to a rise in the unemployment rate and job losses. With this in mind, continued strength and tightness in the labour market may not be a welcomed outcome for the Bank of Canada.

Carrie Freestone, Royal Bank of Canada

“Headline numbers conflict with recent Bank of Canada Survey data. The Bank of Canada Business Outlook Survey indicated business plans to hire staff have fallen alongside wage growth. This conflicts with the January Labour Force Survey data. Indeed, year-over-year wage growth has fallen to 4.5 per cent year-over-year, but hiring continues at a rapid pace and the unemployment rate held steady at a near record low 5 per cent. Any signs of labour market cooling require a deeper dive beyond headline numbers.

“The Bank of Canada has indicated that rates will be held steady unless there is sufficient evidence that more restrictive monetary policy is needed. While the Bank of Canada will likely look past one strong jobs report, if additional reports prove to be stronger than expected, this would pose upside risk to the current terminal rate forecast of 4.5 per cent.”