Canadian Job Market Insights: Surge in wage growth alongside modest job additions in December. Next rate announcement slated for January 24.
In December, Canada’s economic landscape witnessed a more modest job increase than anticipated, maintaining a steady jobless rate at 5.8%. However, there was a noteworthy surge in wages for permanent employees, marking the most rapid escalation in three years, as unveiled by Friday’s data.
The net addition to employment last month amounted to a mere 100 jobs, a far cry from the forecasted 13,500 jobs increase predicted by Reuters analysts. The unemployment rate was anticipated to edge up from November’s 5.8% to 5.9%.
Statistics Canada reported that the annual rate of hourly wage growth for permanent employees soared to 5.7% in December, the highest since January 2021, compared to the 5.0% recorded in November. This figure is closely scrutinized by the central bank.
Discussing the dynamics, Doug Porter, Chief Economist at BMO Capital Markets, remarked, “The main narrative here is a discernible slowdown in the job market. The concerning element for the bank is the substantial leap in average hourly wages for the month.”
The Bank of Canada (BoC) has articulated that wage growth within the 4% to 5% range or higher could impede its efforts to effectively curb inflation. Subsequently, the Canadian dollar depreciated to a 17-day low, exchanging at 74.6435 U.S. cents. This occurred concurrently with the release of U.S. data, indicating a surpassing of expected job additions in December.
Despite a recent easing in job growth due to the impact of the BoC’s ten rate hikes between March 2022 and July 2023, wage growth in Canada has remained robust. The BoC has maintained its key policy rate at a 22-year high of 5% since July, deliberating whether these rates are sufficient to reel in inflation to a 2% target.
However, as inflation gradually recedes and an unanticipated contraction in third-quarter gross domestic product surfaces, speculations arise among money markets and economists. There is an expectation that the bank may commence rate cuts in the first half of 2024.
Statscan reported that Canada’s economy witnessed an average monthly employment growth of 23,000 in the last six months of 2023, contrasting sharply with the average of 48,000 per month in the initial half of the preceding year. In December, the goods sector experienced a net decrease of 42,900 jobs, primarily attributed to losses in manufacturing, agriculture, and construction.
Nevertheless, these losses were counterbalanced by a net gain of 43,100 positions in the services sector. This surge was led by expansions in professional, scientific, and technical services, as well as health care and social assistance.
The next rate announcement by the central bank is slated for January 24, following the release of December inflation data on January 21. BoC Governor Tiff Macklem hinted in an interview with BNN TV last month that the bank might initiate rate cuts in 2024, contingent on core inflation aligning with predictions.
