Job surge suggests rate hike awaits
The Canadian economy added 104,000 jobs in December, blowing away expert estimates
The Canadian economy wrapped up the year by adding 104,000 jobs in December, blowing away estimates and raising the odds of another interest-rate hike later this month.
Economists said the unexpected good news for Canadian workers could delay the end of the Bank of Canada’s dramatic rate-hiking cycle, which saw the central bank increase its key policy rate to 4.25 per cent by the end of 2022.
The bank’s goal is to slow the economy and rein in inflation and while it signalled last month that an end to the hikes could be in sight, market watchers said Friday’s strong labour force numbers suggest another increase of at least 0.25 per cent is now likely. (The next rate announcement is Jan. 25.)
Yet another rate hike means at least a bit more pain for Canadians with variable-rate mortgages and other loans. And it could feed into a worrying trend of spiking personal bankruptcies: consumer insolvency filings were up more than 16 per cent in November, the highest number since the pandemic began.
Royce Mendes, head of macro strategy at Desjardins, said the Statistics Canada Labour Force Survey often spits out surprising numbers that are later revised.
But while he believes the figure should be taken with a grain of salt, he told the Star, “you can’t completely dismiss it.”
“If the economy added anything close to 100,000 jobs, it means that the labour market it still inconsistent with the Bank of Canada’s goal of bringing inflation back down to two per cent,” Mendes said.
“So it probably means that the BOC needs to nudge rates up another 25 basis points at the end of this month.”
The economy gained a total of 381,000 jobs in 2022 and December’s number smashed economists’ expectations for a gain of 5,000, marking the fourth consecutive month that Canada added jobs.
Unemployment dipped by 0.1 percentage point to five per cent, just above the record low of 4.9 per cent set in June and July, according to the Statistics Canada report.
“Labour markets are still exceptionally tight,” Royal Bank of Canada economist Carrie Freestone said in a report Friday, adding, “Close to six per cent of Canadian jobs are vacant, but the number of available unemployed workers available is very low.”
Freestone noted that new jobs came largely from the private sector in December and two-thirds of new positions were filled by youth aged 15 to 24.
Wage growth was up 5.2 per cent in December, down from 5.6 per cent a month earlier. That was a larger-than-usual increase, but still below inflation of about seven per cent, Freestone said.
Meanwhile, total hours worked barely changed at all last month despite the significant increase in people working.
Mendes said that signals the economy is less efficient, owing in part to workers calling in sick at a much higher rate than before the pandemic.
In Ontario, employment was up by 42,000 jobs or 0.5 per cent in December.
Mendes said that looking back at the second half of 2022 as a whole, hiring in construction, which is tied to the interest-rate dependent housing sector, was relatively weak in Ontario.
But as consumers put big purchases such as appliances and home renovations done during the height of the pandemic behind them, Mendes said Ontario has seen “solid growth” in the service sector, with an increase in hiring for jobs in restaurants, bars and hotels.
“(That) is obviously good news as we try to return to some sense of normalcy.”