Canada added 22,000 jobs in February
Stronger-than-expected numbers could spur BoC to raise rates, analysts say
After two straight months of going gangbusters, Canada’s job market is slowing down — but not as much as economists had expected. And that, analysts say, could tempt the Bank of Canada to raise interest rates this year.
Statistics Canada announced Friday morning in its monthly Labour Force Survey that Canada’s economy added 22,000 jobs in February. Most economists had been expecting a much bigger slowdown after two straight months of large gains.
The unemployment rate stayed put at five per cent, the same as in January. Average hourly wages rose by 5.4 per cent in February compared with a year earlier.
A consensus of economists surveyed by Bloomberg had expected Canada’s economy to add only 2,500 jobs in February.
In December, the economy added 104,000 jobs, when most economists were expecting a fraction of that amount.
In January, there was an even bigger net gain, of 150,000.
Douglas Porter, chief economist at BMO, suggested the job gain could push the Bank of Canada toward raising interest rates as it attempts to get inflation under control.
“While somewhat dull in comparison to the blowout in the prior month … this result is far too strong for the BoC’s comfort,” Porter wrote. “The economy is likely just one wrong turn on the inflation front away from the bank flipping back into rate-hiking mode.”
James Orlando, senior economist at TD, agreed.
“For the Bank of Canada, the headline … might be more ‘normal’ compared to prior months, but it is still too high,” Orlando wrote. “Although the BoC has been effective at slowing the parts of the economy most sensitive to interest rates, and it has seen inflation decelerate confidently, a more decisive turn is needed.”
While the February job growth is higher than expected, that’s still no guarantee the bank will raise rates, argued CIBC chief economist Avery Shenfeld.
“The data are still too strong relative to what the Bank of Canada wants to see. But it can afford to be a bit patient and wait for more data before opting to hike again, since they have already delivered a sizable dose of tightening, and its impacts take some time to fully show up,” Shenfeld said.
This week, the Bank of Canada cited strong job growth and rising wages as reasons it was still considering raising interest rates, after having left its key overnight rate at 4.5 per cent.
Also Friday, the U.S. Bureau of Labor Statistics announced the American economy added 311,000 jobs in February, higher than economists expected.
In a speech to the Manitoba Chamber of Commerce Thursday, deputy bank governor Carolyn Rogers also suggested that strong job growth and rising wages could be pushing inflation higher.
“Since interest rates started rising last year, Canada has had the sharpest growth of gross domestic product in the G7. Our labour market also remains strong. While positive, these developments risk putting extra pressure on inflation going forward, especially since Canada’s productivity growth remains low,” Rogers said.
David Macdonald, senior economist at the Canadian Centre for Policy Alternatives, argued that if the bank is tempted to raise rates because of rising wages, it would be thoroughly unjustified.
“It’s now two straight years that wage growth has been lower than inflation, but the Bank of Canada still seems to think workers are responsible for inflation,” Macdonald said. “We’ve seen sky-high corporate profits start to come down a bit, and now inflation is coming down a bit. It’s not labour costs that are driving things.”
Pedro Antunes, chief economist at the Conference Board of Canada, said it’s “a bizarro world” when good job numbers are seen as bad news, but said that’s how the bank is likely thinking right now.
Last March, the bank began an aggressive rate-hike campaign as it attempts to bring inflation down, pushing the overnight rate to 4.5 per cent from 0.25 per cent. In January, a hike of 25 basis points (a quarter of a percentage point) came with a statement from governor Tiff Macklem that it was pausing hikes — at least for the moment.
In January, the annual rate of inflation fell to 5.9 per cent, according to Statistics Canada.
While that’s substantially lower than the 8.1 per cent it peaked at last June, it’s still well above the bank’s target of two per cent. The theory is that by making it more costly to borrow money by increasing interest rates, people and businesses will spend less, eventually driving prices down.
‘‘ It’s now two straight years that wage growth has been lower than inflation, but the Bank of Canada still seems to think workers are responsible.
DAVID MACDONALD ECONOMIST