February 14, 2024
The Bank of Canada will be in no rush to cut interest rates after Statistics Canada reported a larger-than-expected employment gain last month, economists say. The federal agency’s labour force survey released Friday said the economy added 37,000 jobs in January after several months of relatively no change in employment.
Canada’s unemployment rate fell to 5.7 per cent last month, marking the first decline since December 2022.
“I would classify the labour market as tighter-than-expected, but not necessarily stronger-than-expected,” said Andrew Grantham, CIBC’s executive director of economics. “That’s because, yes, employment continued to rise a little bit faster than the consensus expected. But it really paled in comparison with the big increase in population.”
Canada’s population of people aged 15 and older grew 0.4 per cent between December and January, far surpassing the 0.2 per cent growth in employment. The labour market cooled significantly in 2023 as high interest rates weighed on consumer spending and business investment, pushing the unemployment rate up from 5.1 per cent in April to 5.8 per cent in December.
Brendon Bernard, a senior economist with hiring website Indeed says the unemployment rate, however, doesn’t give the full picture when it comes to the state of the labour market. That’s because it only measures the proportion of unemployed people among those who are actively looking for work.
Statistics Canada’s report emphasized the employment rate — which measures the proportion of the working-age population that’s employed — has been declining for four consecutive months, including in January. “I think that’s probably a better barometer of the direction of the labour market,” Bernard said.
Even so, the relatively decent state of the labour market suggests to economists that the central bank can take its time when it comes to cutting interest rates. “Today’s data is certainly not going to speed up the timeline for the Bank of Canada,” Grantham said. The Canadian economy also appeared to end 2023 on a stronger note than expected.
Statistics Canada reported Wednesday the economy grew 0.2 per cent in November, marking the first expansion in six months. A preliminary estimate suggests real gross domestic product increased 1.2 per cent on an annualized basis in the fourth quarter, following a decline of a similar magnitude in the third quarter.
Last month, the Bank of Canada opted to hold its key interest rate at five per cent and signalled that it’s inching closer to rate cut considerations. However, governor Tiff Macklem expressed concern about the stickiness of inflation and warned the central bank will be ready to raise rates if price growth doesn’t co-operate.
CIBC is not changing its forecast on timing for the first rate cut as it still anticipates the central bank will lower its key rate starting in June. But it now expects the bank will cut rates by less overall this year. Employment rose across several sectors in January, led by wholesale and retail trade as well as finance, insurance, real estate, rental and leasing.
Meanwhile, accommodation and food services saw the largest decline in employment. Workers’ wages continued to grow rapidly last month as Canadians seek compensation for past inflation. Average hourly wages, which have been consistently growing at a four to five per cent annual pace, rose 5.3 per cent from a year ago.
Statistics Canada says wage growth has been stronger for women and high-income earners. Although men continue to earn more than women on average, average hourly wages for women rose 6.2 per cent compared with 4.4 per cent for men. For employees in the top 25 per cent of the wage distribution, their wages grew 5.9 per cent compared with 4.6 per cent for those in the bottom 25 per cent.
Canada’s labour market has been supported by strong population growth, driven by permanent and temporary immigration. Compared with a year ago, the economy added 345,000 jobs, while the working-age population expanded by one million people. As the Bank of Canada maintains its key interest rate at five per cent, economists’ forecasts suggest unemployment will rise throughout this year.
