Canada adds an unexpected 37K jobs in January. Will rate cuts be delayed?

Click to play video: 'Canada’s economy adds an unexpected 37k jobs in January'
Canada’s economy adds an unexpected 37k jobs in January
WATCH: Statistics Canada said the country's economy added 37,000 jobs in January, which is double what was expected. The unemployment rate also dipped to the lowest level in more than a year. Kyle Benning reports – Feb 9, 2024

Canada added 37,000 jobs in January as the unemployment rate fell for the first time since December 2022.

The gains, which were above some analyst expectations, were mostly driven by part-time work, and were well above the 10,000 jobs RBC predicted Canadian employers would add.

The bank had also predicted the unemployment rate would rise to 5.9 per cent, up from 5.8 per cent in December. Instead, unemployment came in at 5.7 per cent, down one percentage point from the previous month.

Statistics Canada, which released the data Friday, said there were employment gains spread across several industries in the services-producing sector.

Click to play video: '2024 employment trends'
2024 employment trends

They were led by wholesale and retail trade (up 1.1 per cent) as well as finance, insurance, real estate, rental and leasing (up 2.1 per cent). There were declines in other industries, led by accommodation and food services (down 2.7 per cent).

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Breaking down the data by region, employment increased in Ontario by 0.3 per cent, in Newfoundland and Labrador by 3.2 per cent, in Manitoba up one per cent and in Nova Scotia up 0.7 per cent. It declined in Saskatchewan by one per cent.

Hourly wages were also up in January, rising 5.3 per cent on an annualized basis, following a 5.4 per cent gain in December.

Compared with January 2023, average hourly wages rose at a faster pace for women (up 6.2 per cent to $32.38) than for men (up 4.4 per cent to $37.06) last month.

Click to play video: 'Business News: Canadian economy grows'
Business News: Canadian economy grows

Wages rose at a similar pace for youth (up 5.5 per cent to $20.79) and core-aged (up 5.4 per cent to $37.41) employees over the same period, while they rose at a slower pace for people aged 55 and older (up 3.7 per cent to $35.72).

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What does this mean for rate cuts?

The Bank of Canada has continued to highlight that average annual wage hikes in the realm of four to five per cent is inconsistent with taming inflation without associated gains in productivity.

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Canada’s January job gain builds off a StatCan report released last month that showed the country’s flatlining economy had signs of life heading into the end of 2023.

The agency reported that real gross domestic product rose 0.2 per cent in November, thanks largely to strength in goods-producing sectors.

November marks the first month of growth since May 2023. With interest rates at the highest level seen in decades, the Canadian economy has been struggling to grow.

Click to play video: 'Business Matters: Bank of Canada says timing of rate cut is a moving target'
Business Matters: Bank of Canada says timing of rate cut is a moving target

StatCan’s initial estimates for December show a possible acceleration in growth to 0.3 per cent on a monthly basis, though these reports will be updated at the end of February.

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But early signs of growth suggest Canada’s economy grew overall in the fourth quarter, potentially skirting a technical recession — often defined as two straight quarters of negative growth — after a contraction in the third quarter.

Economists expect growth to remain weak in the first half of this year, before picking back up in the second half of 2024.

The central bank has been looking for signs that the economy is slowing and demand is easing to give it confidence that inflation will continue to trend back down to its two per cent target.

Click to play video: 'Economists expect spring interest rate cut after Bank of Canada holds steady'
Economists expect spring interest rate cut after Bank of Canada holds steady

Douglas Porter, chief economist and managing director of economics at BMO, said in a note Friday the key takeaway from the jobs report is there are no obvious signs of stress for the economy.

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“A decent job gain, a slide in the jobless rate, and persistent five per cent wage growth are hardly the stuff of an urgent call for rate cuts,” he wrote.

“The Bank of Canada is likely to view this report as further reason for a patient policy stance.”

Nathan Janzen, assistant chief economist at RBC, said in a note that the increase in hours worked is consistent with GDP ticking higher early in 2024, and adds to early signs that housing markets have perked up.

“But stronger than feared economic data both in Canada and abroad are leaving central banks with flexibility to be patient before starting to ease off the monetary policy brakes,” he said.

“The data today will reinforce that near-term interest rate cuts from the Bank of Canada are unlikely.”

Tu Nguyen, economist with accounting and consultancy firm RSM Canada, said the economy is more resilient than meets the eye.

“January’s strong job market report proves that Canada can get to a soft landing, but it needs some help,” she said.

“In our view, an April rate cut from the Bank of Canada would solidify the odds.”

— with files from Global News’ Craig Lord and The Canadian Press


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