A “stunning” January jobs report has some economists questioning if and when Canada will tip into a recession, and whether we’ve seen the last of the central bank’s interest rate hikes.
The Canadian economy added 150,000 jobs in January, Statistics Canada said Friday, blowing past most economists’ expectations.
With 153,000 people joining the labour force last month, the unemployment rate held steady at five per cent, hovering just above the record low of 4.9 per cent.
Job gains were made across sectors, with wholesale and retail trade experiencing the largest gains to employment. Full-time work grew by 121,000 positions.
Meanwhile, wages were up 4.5 per cent on a year-over-year basis.
The labour force survey outpaced forecasts from RBC, which expected growth of 5,000 jobs last month.
January’s report came with a revision down for the December figures, which now show only 69,000 new jobs added from the previously reported 104,000.But the Canadian economy has still been on an upward trend with employment since September, adding a total of 326,000 jobs.
That’s despite forecasters anticipating higher interest rates will slow the economy down significantly this year and weigh on employment.
Recession could be delayed, economists say
TD Bank Senior Economist James Orlando called StatCan’s January release a “blowout jobs report” in a note to clients Friday. He said that the strength of the jobs figures gives momentum to consumer spending and the overall economy to start the year.
Moshe Lander, professor of economics at Concordia University in Montreal, tells Global News that the addition of 150,000 jobs last month caught most by surprise because it runs counter to rumblings about a possible recession looming in 2023.
“We’ve been talking about, for the last 12 months, higher interest rates, high inflation, possible recession, global slowdown. Nothing’s been positive news. And yet somehow the job market continues to defy expectations,” he says.
“It’s a stunning number. You would almost think that the decimal was in the wrong spot.”
CIBC Senior Economist Andrew Grantham said in a client note Friday that the uptick in hours worked in January “suggests that the economy certainly isn’t on the verge of recession.”
The report was strong enough that Bank of Montreal revised its call for a recession. Chief Economist Doug Porter said in a note that the bank now expects “moderate growth” in Canada’s gross domestic product this quarter, with the “mild contraction” arriving a quarter later than first thought and rebounding in Q4.
“The economy is a long way from recession at the moment. Accordingly, we are adjusting our economic forecast to reflect that rather loud reality,” he wrote.
Lander says this jobs report shows the Bank of Canada’s eight consecutive interest rate hikes from the past year have not “torpedoed” the broader economy — yet. Though headlines continue to show deep layoffs hitting major players in the tech sectors, he says any losses are being more than offset by the majority of employers.
The stronger Canada’s labour market remains, the later a recession is likely to set in, Lander says, and it might be less painful if it does arrive.
“At some point, you would think that the economy has to slow down in a way that firms overall will net stop hiring. And we just haven’t gotten to that point yet,” he says. “The economy continues to defy expectations.”
What does this mean for the Bank of Canada?
The latest reading of employment levels comes as the Bank of Canada takes a conditional pause from hiking its key interest rate further as it assesses how the economy is responding to higher rates.
The Bank of Canada says the tight labour market is a sign of an overheated economy and needs to ease in order for the country’s annual inflation rate to come down.
While Orlando said the January jobs report is likely to “raise eyebrows” at the central bank, he does not expect the single economic release to deter the Bank from its planned pause.
The Bank of Canada has said it will need an “accumulation of evidence” that inflation is not following its forecast before it would raise rates further.
Grantham agreed with Orlando’s take, but said the strong jobs print will likely still see markets price in a greater probability of more interest rate hikes to come.
Before the jobs numbers, markets had been betting that the Bank of Canada’s next move would be to cut rates. After the figures were released, money markets priced in a greater probability of a rate increase instead.
When he announced a pause on rates, Governor Tiff Macklem said it was “conditional” and did not rule out further increases.
“I don’t necessarily think that it’s an ironclad prolonged pause. It’s a conditional pause and we just have to watch the data,” said Derek Holt, vice president of capital markets economics at Scotiabank. He told Reuters Friday that a rate hike in April is more likely.
“I don’t think that we have to worry in March that we’re going to see an interest rate increase because of this jobs report,” Lander tells Global News.
He says that while wage pressures showed signs of cooling in January, the 4.5 per cent increase is still above the Bank of Canada’s one-to-three per cent target for inflation. As long as this figure remains elevated, there will be inflationary pressures coming from the labour market, he says.
Lander says that despite this, wages have yet to show any sign that they’re fuelling inflation.
— with files from The Canadian Press, Reuters