The Bank of Canada is certain to feel the pressure from the country’s resilient labour market but is unlikely to deliver another interest rate hike next week, economists say.
The national unemployment rate held steady for a fourth straight month at 5.0 per cent in March, according to Thursday’s release of Statistics Canada’s Labour Force Survey, which is just above the record low of 4.9 per cent.
Employment rose slightly with 35,000 positions added last month, the agency said, with job gains concentrated in the private sector.
The transportation and warehousing sectors, as well as the finance, insurance and real estate spaces, saw a bump in hiring over March.
Industries such as construction and natural resources shed jobs in the month.
Average hourly wages were up 5.3 per cent last month, slightly outpacing the latest inflation reading of 5.2 per cent.
Will strong jobs data force the Bank of Canada off the sidelines?
Canada’s labour market has been on a recent hiring trend, Statistics Canada noted, with some 383,000 jobs added since September 2022.
TD Bank senior economist James Orlando said in a note to clients Thursday that the March jobs report shows “strong underlying momentum that continues to build in the Canadian economy.”
The Bank of Canada, which has raised interest rates substantially over the past year to cool the economy and take steam out of inflation, has warned that Canada’s low unemployment rate will need to rise before price pressures are fully tamed.
The central bank is currently on a conditional pause for its rate hikes, with the next decision for its policy rate coming on April 12. Policymakers have said they will need to see an “accumulation of evidence” that inflation is not progressing according to its forecast to move from the pause.
Orlando said that the central bank certainly knows the economy is running hot and that the tight labour market is boosting many Canadians’ incomes and allowing them to continue spending freely.
Citing TD’s credit card spending data, he said Thursday’s jobs figures support the bank’s forecast for two per cent gross domestic product (GDP) growth in Canada for the first quarter of the year.
“That is not the kind of growth the BoC wants to see when it is trying to ensure that inflation gets back to target,” he wrote.
“Although today’s report isn’t enough to get the Bank off the sidelines, the fact that nothing so far seems to be able to crack the Canadian jobs market juggernaut must be worrying.”
Each of the 33 economists surveyed by Reuters agreed that the Bank of Canada is likely to leave its policy rate untouched on April 12.
Andrew Grantham, senior economist at CIBC, also said in a note to clients Thursday morning that the Bank of Canada is still expected to hold interest rates next week.
But he said robust jobs data will likely put the Bank’s policymakers more in the camp of future rate increases than cuts this year.
Grantham added that, given the narrowing of job gains by industry in the latest report, the unemployment rate will start to lose ground as 2023 progresses. Robust immigration figures will grow the size of the labour force as job growth eventually lags, he argues, “seeing the unemployment rate rise modestly and wage inflation ease.”
“That will keep the Bank of Canada on hold this year, before allowing for rate cuts starting early in 2024,” Grantham concluded.