January 11, 2024
Canada’s labour market finished 2023 in the doldrums, with employers pulling back on hiring as part of a broader economic slowdown driven by high interest rates. The country added just 100 net new jobs in December, after an increase of 25,000 in November and 18,000 in October, Statistics Canada said Friday. Bay Street analysts were expecting an increase of 13,500 jobs last month.
The unemployment rate remained at 5.8 per cent. It has risen consistently over the past year as rapid population growth has outstripped job creation. But last month, this dynamic was offset by a decline in labour-force participation, keeping the unemployment rate steady.
The stall in job growth appears to shore up the case for the Bank of Canada to start cutting interest rates in the coming quarters. However, the central bank remains wary of rapid wage growth. And here the December data was surprisingly robust.
On an annual basis, average hourly wages rose 5.4 per cent in December, up from 4.8 per cent in November and the quickest pace since last February. Bank of Canada officials have said that continuing wage growth in excess of four per cent is not compatible with its two-per-cent inflation target, unless there is a significant jump in labour productivity.
“December data provided a classic mixed bag of results, with some stronger than expected news in terms of wages and hours worked, alongside a weaker than anticipated headline change in employment,” Canadian Imperial Bank of Commerce senior economist Andrew Grantham said in a note to clients. “Because of that, today’s data don’t change our expectation for the timing of a first Bank of Canada interest rate cut, which we still see occurring in June this year.”
Most private-sector economists expect the central bank to start lowering its policy interest rate, currently at a 22-year high of five per cent, some time around the middle of the year. Financial markets are leaning toward the first rate cut coming in April. The bank’s next rate decision is on Jan. 24. The stagnant labour market in Canada contrasts with the United States. On Friday, the U.S. Labour Department published larger-than-expected job growth numbers for December.
Non-farm payrolls increased by 216,000, up from a rise of 173,000 in November, while the U.S. unemployment rate remained steady at 3.7 per cent. These numbers lent credence to the idea that the U.S. Federal Reserve is guiding the American economy toward a “soft landing,” where inflation comes down without a major recession. But they also suggest that markets might be overly optimistic in betting that the Fed could begin to lower rates as soon as March.
The Fed, like the Bank of Canada, is deliberately trying to cool the economy and weaken the labour market to reduce inflationary pressures. In December, Fed officials said they expected to cut interest rates three times in 2024, but said nothing about timing.
The Canadian economy overall has slowed more rapidly than its neighbour to the south. And this showed up in softer labour market data through the back half of 2023. Job growth in Canada averaged 48,000 per month in the first half of the year, but only 23,000 per month in the second half, Statscan said.
“Today’s sluggish results suggest that the softening seen in the broader economy is finally catching up with the job market,” Bank of Montreal chief economist Douglas Porter wrote in a note to clients about the Canadian job numbers.
“Prior to December, employment gains had remained amazingly sturdy in the face of paltry GDP growth (at the expense of sickly productivity). That may now be shifting. If so, this would suggest that the jobless rate is almost certain to head higher, pushing above six per cent in coming months,” he said.
The employment picture varied across sectors and between full-time and part-time work in December. Part-time jobs increased by around 23,600 while full-time jobs declined by roughly the same amount.
There were big gains in professional, scientific and technical services jobs, which rose by 46,000, as well as gains in health care and “other services” jobs. But this was offset by job declines in five industries, including retail, manufacturing and agriculture. Employment increased in British Columbia, Nova Scotia, Saskatchewan and Newfoundland and Labrador, but declined notably in Ontario, falling by 48,000. Employment in other provinces was essentially flat.
Rapid population growth, driven by record levels of immigration, remains a key dynamic in the labour market. Canadian employers created around 430,000 new jobs last year, according to the monthly labour force survey. But over that same period, the working age population increased by 945,000 – including by 74,000 in December. This mismatch between newcomers and new jobs has helped push the unemployment rate up from five per cent last January to 5.8 per cent by the end of the year.
Brendon Bernard, senior economist at hiring site Indeed Canada, said he expects the unemployment rate to trend higher in the coming months, driven by population growth and slower hiring. But he is not expecting a sudden jump in joblessness. So far, at least, weak job creation has not been accompanied by layoffs.
“If layoffs were at more normal levels, then all these moving parts together would make for a much weaker overall labour market,” Mr. Bernard said in an interview. “At least if the past few quarters are any indication, relatively flat GDP growth has come along with relatively low layoff rates. So now it’s a question of, do we descend into a hard [economic] landing?” he said.
