January 11, 2024
Jobs numbers for December offered a “mixed” picture that could convince the Bank of Canada to be patient when it comes to interest rate cuts, some economists say. “Overall, this is a classic mixed bag report with some stronger than expected news and some weaker,” said Andrew Grantham, senior economist at CIBC Capital Markets, in note to investors.
Employment was virtually unchanged last month and the jobless rate held steady at 5.8 per cent, Statistics Canada said Jan. 5. Economists had expected a gain of 15,000 jobs and predicted the unemployment rate would rise to 5.9 per cent. Despite an ongoing increase in the working-age population, the participation rate fell 0.2 percentage points to 65.4 per cent leaving the jobless rate unchanged.
Employed Canadians clocked in more time with total hours worked coming in stronger than expected, up 0.4 per cent in December and 1.7 per cent year-over-year. Average hourly wages grew 5.4 per cent from the same time last year compared with an increase of 4.8 per cent year over year in November.
The Bank of Canada won’t be happy about the wage growth, said Stephen Brown, deputy chief North America economist at Capital Economics. “That is far too high to be consistent with the Bank of Canada’s two per cent inflation target,” he said in a note.
Here’s what economists are saying about the jobs numbers and what they mean for the Bank of Canada and interest rates:
“The bottom wasn’t falling out from under Canadian labour markets in December. But employment growth has slowed, the unemployment rate is still up significantly from the spring, and (despite still surging population counts) hours worked outright declined in Q4 of last year for the first time since Q2 2020. The Bank of Canada will still be cautious about pivoting to rate cuts too quickly — and wage growth is still running above the pace historically consistent with their two per cent inflation target. But our own expectation is that the economic backdrop is soft enough for inflation to continue to move lower and that the BoC will start to push the overnight rate lower around mid-year this year.”
Nathan Janzen, RBC Economics
“While a further decline in the employment rate is evidence that the labour market continues to weaken, the decline in participation and acceleration in wage growth suggests that it isn’t loose enough for the Bank of Canada to cut interest rates quite yet. We continue to see the unemployment rate creeping higher in the first half of 2024, reaching a peak of between six to 6.5 per cent, which would bring a first interest rate cut from the bank in June.”
Andrew Grantham, CIBC
“The unchanged level of employment in December is consistent with the message from the business surveys that labour demand has weakened significantly in recent months. Nonetheless, with wage growth accelerating again last month, weaker employment growth may not be enough to persuade the Bank of Canada to cut interest rates as soon as we forecast.
“The big worry is that average hourly earnings growth rose to 5.4 per cent year over year, from 4.8 per cent. The move in December implies that average earnings jumped by 0.6 per cent month over month in seasonally adjusted terms, following the 0.5 per cent rise in November. With productivity growth currently negative, that is far too high to be consistent with the Bank of Canada’s two per cent inflation target. While alternative measures generally point to slower wage growth, the jump in the (labour force survey) measure of wage growth still presents a clear risk to our view that the bank will be ready to cut interest rates as soon as its March meeting.”
Stephen Brown, Capital Economics
“Today’s sluggish results suggest that the softening seen in the broader economy is finally catching up with the job market. 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. In turn, that should eventually take some steam out of wage gains.
“For the Bank of Canada, the sticky wage strength, combined with the solid U.S. payroll results today, will more than offset the sluggish domestic job tally. We continue to expect the Bank to be very patient on the rate cutting front.”
Douglas Porter, BMO Economics
“We think the BoC is unlikely to contemplate rate cuts until inflation has been brought sustainably below three per cent. This is unlikely to happen until the late spring. However, the timing of the first rate cut could be brought forward if growth slows more than expected in the coming months, suggesting a harder landing.
“Whether the country experiences a soft or hard landing depends heavily on the health of the evolution of the labour market, i.e. whether we see a hiring freeze or broad-based layoffs as the economic activity slows further.”
Charles St-Arnaud, Alberta Central
“All told, today’s report does little to change the BoC’s thinking. The overall trend in the Canadian economy has been that of gradual weakness. The Canadian consumer has pulled back in the face of high interest rates and businesses have slowed the pace of hiring. With underlying inflation moving towards the BoC’s target, an April policy rate cut remains in view.”
James Orlando, TD Economics
“The labour market capped off December with a non-story labour market performance, with notable fluctuations among industries and provinces. That said, on the net, there was little to be said for economic traction and points to slower economic conditions in Q4 and heading into Q1 2024. The persistent strength in wage growth will remain of some concern in the inflation story. That said, with further economic headwinds to come in coming quarters, we continue to expect a cut in the Bank (of Canada’s) policy rate in Q2 2024.”
Bryan Yu, Capital 1
“Even as job growth halted, wage growth remains far above inflation. This creates an interesting scenario for the Bank of Canada. The weaker-than-expected job report might accelerate the bank’s decision to slash rates, but the hot wage growth does not ease concerns about sticky inflation.
“Nevertheless, a rate cut in the second quarter is imminent to avoid a downturn that is deeper than needed.”
Tu Nguyen, RSM Canada
“Under our base case we expect the BoC to begin easing in April, cutting the overnight lending rate by 25 basis points to 4.75 per cent. After which point we expect weak levels of growth, increasing slack within the labour market, and below target near-term rates of inflation will lead the BoC to cut 25 basis points at every meeting until year-end, bringing the policy rate to 3.5 per cent.”
Simon Harvey, Monex Europe and Canada
