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Canada’s jobs market ‘refuses to cool.’ What does that mean for our central bank?

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The national unemployment rate held steady in February, Statistics Canada said Friday, with employment “little changed.”

The agency said employers added 22,000 jobs last month and the unemployment rate was unchanged at 5.0 per cent, remaining just above record lows.

Growth was largely concentrated in the private sector and full-time employment. Health-care, public administration and utilities sectors saw boosts while business, building and support sectors saw declines in February.

Statistics Canada says employment has been on an upward trend since last September, but February’s increase is a smaller step than the January and December job prints.

Canada saw strong employment growth of 150,000 new jobs in January and 69,000 jobs in December, despite indications the country’s economy was slowing heading into 2023.

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In February, the gap between wage growth and inflation narrowed, with average hourly wages up 5.4 per cent compared with a year ago.

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The Bank of Canada, which is working to bring down the country’s high inflation rate, has raised concerns that sustained four to five per cent wage growth will make it harder to return to its two per cent inflation target.

At its latest interest rate announcement, the Bank of Canada held its key interest rate steady but flagged that the labour market is still too tight.

The Bank reaffirmed is conditional pause on rate hikes on Wednesday, but left the door open to future increases if data shows inflation is not slowing according to its forecast.

The central bank says it expects the labour market to ease in the coming months, as higher interest rates slow spending by people and businesses.

But TD Bank senior economist James Orlando said in a note to clients Friday morning that the latest jobs report does not show signs of that slowing yet.

While more modest growth than the preceding months, Orlando said February’s jobs report was likely still too hot for the Bank of Canada’s comfort.

“The jobs market in Canada continues to roll,” he wrote. “The employment gain alongside higher wages and people working more hours points to a labour market that refuses to cool.”

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Orlando said a “more decisive turn” is needed to show wider parts of the economy — not just those most sensitive to interest rate hikes — are slowing.

“Given that the BoC is in wait-and-see mode with its conditional pause, it believes that it is only a matter of time before a slowdown shows up in the broader economy. But with today’s labour market report, it will have to wait a little while longer,” he wrote.

CIBC senior economist Andrew Grantham also said that the robust labour market, unless it starts show signs of cooling soon, could put the Bank of Canada in the camp of further interest rate increases.

“The still historically low unemployment rate and strong wage growth will keep the Bank of Canada leaning towards future rate hikes, although we still don’t think the data will be strong enough for policymakers to actually move again,” Grantham wrote in a note Friday.

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A similar report from the United States on Friday showed employers south of the border added a substantial 311,000 jobs in February, fewer than a huge gain seen in January but enough to keep pressure on the Federal Reserve to raise interest rates aggressively to fight inflation.

The unemployment rate in the U.S. rose to 3.6 per cent, up from a 53-year low of 3.4 per cent, as more Americans began searching for work but not all of them found jobs.

— with files from The Canadian Press and The Associated Press

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