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As Canada’s economy has fallen to earth in recent months, the country’s labour market has continued to soar to new heights. Economists wonder how much longer the gravity-defying act can last.

After a blistering first two months of the year in which employment swelled by 123,000 – the hottest two-month run in nearly seven years – economists expect much tamer numbers on Friday when Statistics Canada releases its monthly Labour Force Survey for March. The median estimate is a modest dip of about 10,000 jobs, although some forecasters still anticipate a small increase.

But barring a substantial reversal, the March job numbers should continue to show a labour market that has remained remarkably resilient to the forces that have slowed down the Canadian economy. Employment has swelled by 220,000 since last September, despite gross domestic product growth slowing from a 2-per-cent annualized rate in the third quarter to just 0.4 per cent in the fourth quarter.

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While other key economic drivers – such as trade, retail sales and housing starts – have floundered, the labour market figures remain strong. The unemployment rate, at 5.8 per cent, remains near four-decade lows. The employment rate – the percentage of people aged 15 and over with jobs – is at a 10-year high.

“The current six-month trend for job growth is entirely at odds with broader conditions in the Canadian economy,” Toronto-Dominion Bank’s economics department said in a report last week.

Indeed, many economists are wondering when, or if, the job market will start to show the effects of the slowdown – or, conversely, if the strength in hiring is evidence that the slowdown is a short-term phenomenon.

“It’s a conundrum,” Bank of Nova Scotia economist Derek Holt said. “There are plausible explanations, other than that there is another shoe to drop.”

One such possible explanation – given the recent slowing of business investment amid continuing uncertainties surrounding global trade – is that businesses are holding off on big spending commitments on facilities and new equipment and have opted to expand their staff instead.

On the other side of the coin, Mr. Holt suggested the causes of the economic slowdown – most notably the downturn in the Canadian oil sector – may be “idiosyncratic in nature and not disruptive across the entire economy.”

If so, this slowdown may look similar to 2015, when an even more severe oil slump crippled Canada’s energy-producing regions and dragged the overall economy down with it, resulting in two consecutive quarters of GDP contraction in the first half of the year. Yet, the labour market remained resilient, with employment rising by 75,000 in the first six months of 2015. (That labour strength is cited by many economists as evidence that despite the two-quarter growth slump, the downturn did not constitute a true recession.)

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Friday’s gross domestic product report for January lends credence to the argument that the weakness in the economy could prove a passing phase. GDP grew 0.3 per cent in the month, more than reversing the slide in November and December, with almost every sector outside of energy showing gains.

Regardless of the reason, business sentiment indicators have continued to point to more hiring in 2019, despite the already high employment levels and the expected slower pace of growth this year. The Bank of Canada’s most recent quarterly Business Outlook Survey, released in December, showed that more than half of employers still plan to increase their staff levels this year, compared with just 10 per cent who expect to reduce payroll.

Beyond the job count, observers will be watching a couple of other key elements of the Labour Force Survey to gauge the strength of the labour market.

One will be whether the participation rate – the percentage of working-age Canadians who are either employed or actively seeking work – continues its recent rise. An improving participation rate is evidence that strong labour demand is drawing more people into the work force, a healthy sign for further economic growth. On the other hand, if participation continues to grow but job growth slows or stalls, the result would be an uptick in the unemployment rate.

Another key will be the survey’s wage-growth indicators. Wages have been slow to gain traction despite the heavy hiring activity of recent months. But an acceleration in wage gains may signal that tight labour supplies are finally feeding into inflation of workers’ pay.

Higher wages would not only be a positive sign for future consumer-fuelled economic growth, but would signal growing inflationary pressures – a critical factor in the Bank of Canada’s views on whether further interest-rate increases are warranted to keep inflation under wraps.

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