Canadian employers went on a hiring binge to end 2022, the latest sign of a hot economy that could push the Bank of Canada to raise interest rates again this month.
The economy added 104,000 jobs in December, far more than the 5,000 that financial analysts were expecting, Statistics Canada said in a report Friday. As a result, the unemployment rate dropped to 5 per cent from 5.1 per cent. After a summer lull – employment fell for three consecutive months, from June to August – job creation has come roaring back.
The private sector accounted for the entirety of the new jobs last month, most of which had full-time hours.
Over the year, employment rose by 394,000 – entirely driven by full-time positions, which jumped by 401,000.
Also on Friday, the United States reported that it added 223,000 positions in December. Job creation has been slowing there of late, after some outsized gains throughout 2022.
But Canada’s labour market is showing resilience in the face of mounting headwinds. Notably, the Bank of Canada is raising interest rates at the most aggressive pace in decades to cool the economy and tamp down sky-high inflation. In fact, in November, Bank of Canada Governor Tiff Macklem said explicitly that unemployment must rise in order to slow inflation. In a series of moves, the central bank has hiked its policy rate to 4.25 per cent – the highest since 2008 – from 0.25 per cent in early 2022.
This has led to concerns that companies, facing higher borrowing costs and weaker consumer spending, would pause their hiring plans or begin to lay off workers. Broadly speaking, that has yet to happen.
In December, the Bank of Canada indicated that its rate-hike campaign was nearing an end as it shifted to a “data-dependent” approach to monetary policy. After Friday’s strong jobs report, several financial analysts said the bank is poised to raise its policy rate again on Jan. 25.
“While it’s always dangerous to read too much into a single Canadian jobs report, it’s safe to conclude that the economy still had some serious zip at the end of last year,” Bank of Montreal chief economist Doug Porter said in a note to clients. He expects the central bank to hike its key lending rate to 4.5 per cent this month before pausing to reassess.
With the unemployment rate near a record low, and with average wages growing quickly, “the risk is heavily tilted to the need for the bank to ultimately do even more to quell underlying inflation pressures,” Mr. Porter added.
The Canadian labour market showed broad-based strength in December.
Several industries enjoyed robust gains in employment, including construction (35,000), transportation and warehousing (29,000) and culture and recreation (25,000). Most provinces saw employment rise last month, led by Ontario (42,000) and Alberta (25,000). Quebec continues to have the lowest unemployment rate in the country, at 4 per cent.
Young workers were among the major beneficiaries. Employment among those aged 15 to 24 rose by 69,000. Meanwhile, among women in the core working ages of 25 to 54, the average employment rate of 81 per cent in 2022 was a record high.
Not all the details of the jobs report were encouraging. The total number of hours worked was little changed in December, despite the bump in workers.
Andrew Grantham, a senior economist at CIBC Capital Markets, posited that employee illnesses could be having a material impact on work hours. Statscan’s report showed that 8.1 per cent of employees were absent due to illness or disability from Dec. 4 to 10, up from 6.8 per cent the previous month and higher than an average December before the pandemic.
“The strength in hiring could therefore be a reflection of companies needing more staff in order to obtain the same level of supply that they were able to achieve before the pandemic struck,” Mr. Grantham said in an investor note.
The average hourly wage rose 5.1 per cent in December from a year earlier. That was the seventh consecutive month of wage gains above 5 per cent, but also marked a deceleration from November’s 5.6-per-cent growth. Furthermore, wage growth still lagged behind inflation, which was 6.8 per cent in November. This means the average worker is seeing their purchasing power decline.
Matt Lundy