Canada’s labor market began 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 begin considering interest rate cuts in the coming months.
The country added 37,000 jobs in January, boosted by an increase in part-time work, while the unemployment rate fell to 5.7 per cent, the first drop since December 2022, Statistics Canada reported Friday in Ottawa. The numbers beat expectations for a 15,000 job gain and a 5.9 percent unemployment rate, according to the median estimate in a Bloomberg survey of economists.
Wage growth for permanent employees slowed to 5.3 percent, matching economists’ expectations, from 5.7 percent the previous month.
The Canadian dollar jumped after the release, strengthening 0.3 percent to $1.3413, before halting the advance. The Canadian dollar also hit its highest level against the yen since 2008, while the benchmark two-year Canadian bond yield fell one basis point to trade near session lows.
While the report shows an economy still barely generating jobs after three months of little change, population growth fueled by strong immigration still outpaced job growth. This highlights the expansion of supply amid cooling demand as the economy stagnates due to high borrowing costs. Greater slack in the economy also appears to be helping cool wages, one of the key metrics the central bank is watching.
Overall, the data gives authorities more room to consider lowering interest rates as early as the first half of this year. In January, Gov. Tiff Macklem and his officials kept policy rates unchanged at 5 percent and explicitly stated for the first time that their discussions are focusing on how long borrowing costs will remain at the current level.
In January, Bank of Canada Governor Tiff Macklem and her officials kept policy rates unchanged at five per cent and explicitly stated for the first time that their discussions are focusing on how long borrowing costs will remain in place. current level.
“The Bank of Canada will not change course after today’s report. The data is simply too volatile and does not paint a clear picture of the state of the Canadian economy,” James Orlando, an economist at Toronto-Dominion Bank, said in a report to investors. “This leaves the Bank of Canada continuing to obsess over the state of inflation.”
Although wage growth remains high, officials considered past gains to “largely reflect the recovery in the cost of living,” according to a summary of their January deliberations. They said wage growth is a “lagging indicator of labor market activity and that some recovery in real wages was to be expected.”
They expect wage growth to gradually moderate, labor shortages to now be around “normal levels,” and the economy to have more supply than demand. They also consider that future labor market adjustments will occur more through increases in unemployment.
This is the only jobs report ahead of the next rate decision on March 6. Economists generally expect authorities to keep interest rates at 5 percent for the fifth straight meeting, and predict the easing cycle will begin between April and July.
“The details of the report were contradictory. The composition of job growth did not show great signs of labor market health: online, 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 recorded its biggest monthly increase in a year, after stabilizing during the second half of 2023.”
Total hours worked in January increased 1.1 percent from a year ago and 0.6 percent for the month.
The participation rate fell 0.2 percentage points to 65.3 percent, while the number of people in the labor force remained stable and the working-age population increased.
Year after year, the participation rate has fallen most sharply among young people aged 15 to 24. In January, it was down 3 percentage points compared to the same month last year, while it fell 0.3 percentage points for 25-year-olds. to 54 and there were few changes for those over 55 years of age.
The employment rate (the proportion of the working-age population that is employed) fell 0.1 percentage point to 61.6 percent, the fourth consecutive monthly drop, as the population aged 15 and over in the survey grew by 126,000 people in the month.
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Employment gains were spread across the service production sector, led by wholesale and retail trade, finance and real estate, and educational services. The declines were led by accommodation and food services, professional and technical services, and health and social care.
Regionally, employment rose in four of 10 provinces, led by Ontario, Canada’s most populous province.
— With the help of Erik Hertzberg and Carter Johnson.