Canada job gains double forecasts but wage growth cools

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Jobless rate falls to 5.7% in first decline in more than a year

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Canada’s labour market started off the year with the biggest job gains in four months, but slowing wage growth points to further easing of price pressures, which may allow the Bank of Canada to start considering interest rate cuts in the coming months.

The country added 37,000 jobs in January, driven by an increase in part-time work, while the unemployment rate fell to 5.7 per cent, the first decline since December 2022, Statistics Canada reported Friday in Ottawa. The figures beat expectations for a gain of 15,000 positions and a jobless rate of 5.9 per cent, according to the median estimate in a Bloomberg survey of economists.

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Wage growth for permanent employees decelerated to 5.3 per cent, matching economist expectations, down from 5.7 per cent a month earlier.

The Canadian dollar jumped after the release, strengthening 0.3 per cent to $1.3413, before paring the advance. The loonie also touched its highest level versus the yen since 2008, while the yield on the benchmark Canadian two-year note held slipped a basis point to trade near session lows.

Population growth

While the report shows an economy still eking out jobs after three months of little change, population growth driven by strong immigration still outpaced of employment gains. That highlights expanding supply amid cooling demand as the economy stalls due to high borrowing costs. Greater slack in the economy also seems to be helping cool wages, one of the key metrics the central bank is watching.

Overall, the data gives policymakers more room to consider lowering interest rates as early as the first half of this year. In January, Governor Tiff Macklem and his officials kept policy rates unchanged at 5 per cent and explicitly stated for the first time that its discussions are shifting toward how long to maintain borrowing costs at the current level.

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In January, Bank of Canada governor Tiff Macklem and his officials kept policy rates unchanged at five per cent and explicitly stated for the first time that its discussions are shifting toward how long to maintain borrowing costs at the current level.

“The Bank of Canada won’t change course after today’s report. The data are simply too volatile and don’t paint a clear picture of the state of the Canadian economy,” said James Orlando, an economist at Toronto-Dominion Bank, said in a report to investors. “This leaves the BoC to continue fixating on the state of inflation.”

Although wage growth remains elevated, policymakers viewed past gains as “largely reflecting catch-up with the cost of living,” according to a summary of their January deliberations. They said wage growth is a “lagging indicator of labour market activity and that a certain amount of catch-up in real wages was to be expected.”

They expect wage growth to moderate gradually, with labour shortages now around “normal levels” and the economy having more supply than demand. They also see future labour market adjustments to come more through increases in unemployment.

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This is the only jobs report before the next rate decision on March 6. Economists widely expect policymakers to hold policy rates at 5 per cent for a fifth straight meeting, and predict the easing cycle to start between April and July.

“Details in the report were mixed. The composition of job growth didn’t show great signs of labour market health: on-net, gains only came from part-time positions, as well as the public sector,” said Brendon Bernard, senior economist at Indeed. “The news was more positive for hours worked, which posted their strongest monthly gain in a year, after flatlining over the second half of 2023.” 

Total hours worked in January rose 1.1 per cent from a year ago and were up 0.6 per cent in the month.

Participation rate

The participation rate fell 0.2 percentage points to 65.3 per cent, as the number of people in the labour force held steady and the working-age population rose.

On a year-over-year basis, the participation rate has fallen more steeply among youth aged 15 to 24. In January, it was down 3 percentage points compared with the same month last year, while it dropped 0.3 percentage points for those aged 25 to 54 and was little changed for those 55 and older.

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The employment rate — the proportion of the working-age population that’s employed — fell 0.1 percentage point to 61.6 per cent, the fourth straight monthly decline, as population aged 15 and older in the survey grew by 126,000 in the month.

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Employment gains were spread across the services-producing sector, led by wholesale and retail trade, finance and real estate, and educational services. Declines were led by accommodation and food services, profession and technical services, and health care and social assistance.

Regionally, employment rose in four of 10 provinces, led by Ontario, Canada’s most populous province.

— With assistance from Erik Hertzberg and Carter Johnson.

Bloomberg.com

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