Signs of strength in Canada’s labour market to close out 2024 are fuelling doubts among some Canadian economists about whether the central bank will deliver another interest cut later this month.
A jump in new jobs helped bring the Canadian unemployment rate down a tick to 6.7 per cent in December, according to Statistics Canada.
Canadian employers collectively added some 91,000 net new jobs last month, the agency said, with BMO calling it one of the largest single months of gains in two years.
Job gains were largely in full-time work and broadly based across multiple industries, led by educational services and transportation and warehousing. The public sector saw a jump of 40,000 jobs, while some 27,000 positions were added in private work.
The December unemployment figures compare to a jobless rate of 6.8 per cent in November. Economists had largely expected a slight increase in the unemployment rate to 6.9 per cent.
CIBC senior economist Andrew Grantham said in a note to clients on Friday that the Canadian labour market ended 2024 “with a bang.”
StatCan said the employment rate — the proportion of the population aged 15 and older who are employed — ticked up 0.2 percentage points to 60.8 per cent in December, the first increase since January 2023.
Canada’s employment rate has largely been contracting over the past few years as the economy slows and the Canadian labour force grows faster than the pace of hiring. But StatCan pointed to the recent slowing pace of population growth to contextualize the uptick in the employment rate.
Bank of Canada rate cut odds pared back
The pace of annual wage growth meanwhile continued to slow in December to 3.8 per cent, down from 4.1 per cent in November and 4.8 per cent in October.
The Bank of Canada has previously flagged high wage growth compared to productivity advancements as one risk that could keep inflation stubbornly elevated.
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With price pressures under better control, the central bank lowered its benchmark interest rate in five consecutive decisions last year in a bid to stimulate Canada’s slowing economy. The Bank of Canada’s policy rate fell by 1.75 percentage points since June, including two back-to-back cuts of 50 basis points in October and December.
Lower interest rates make borrowing cheaper and encourage spending among Canadians and businesses, but it can take up to a year or longer before cuts are fully felt in the economy.
BMO chief economist Doug Porter said in a note Friday that December’s jobs report showed an economy “getting up off the mat.”
While he warned that the labour force survey can be “volatile” and cautioned against putting too much weight on a single report, he said that “the solid job gains will prompt some meaningful doubt on whether the Bank of Canada will cut again in January.”
Odds of an interest rate cut at the Bank of Canada’s first rate decision of the year on Jan. 29 shrank to 61 per cent, down from 70 per cent before the jobs data, according to Reuters.
“Today’s report puts a January rate cut into question,” TD Bank director of economics James Orlando said in a note to clients.
Bank of Canada governor Tiff Macklem warned after the central bank’s half-point rate cut in December that Canadians should expect a “more gradual” pace of easing in 2025 if the economy continues to evolve as the central bank expects.
Grantham echoed that the December employment figures were stronger than anticipated, adding that if other data mirror signs of a steadier economy, the pace of interest rate cuts could slow from this point.
But he maintained that the Bank of Canada’s policy rate is still on the restrictive side of neutral and CIBC forecasts another 25-basis-point cut later this month and a full percentage point of easing in 2025.
Trump tariff threats loom over Canadian jobs
Canada’s economic growth prospects have in recent months been clouded by the threat of tariffs from incoming U.S. President Donald Trump.
On Friday, Statistics Canada noted that 8.8 per cent of Canadian workers, or around 1.8 million people, in 2024 worked in industries that were dependent on U.S. demand for Canadian exports.
Industries with the highest proportion of employment dependent on U.S. demand included oil and gas extraction (74.3 per cent), pipeline transportation (71.7 per cent), primary metal manufacturing (60.8 per cent) and transportation equipment manufacturing (56.0 per cent), StatCan said.
U.S. job growth also unexpectedly accelerated in December while the unemployment rate fell to 4.1 per cent. The labour market south of the border ended the year on a solid footing, reinforcing views that the Federal Reserve would keep interest rates unchanged this month.
Nonfarm payrolls increased by 256,000 jobs last month, the most since March, the Labor Department’s Bureau of Labor Statistics said.
— with files from Reuters
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