The Canadian economy showed resilience in October as it created a robust number of jobs, more than recouping the positions lost during a summer lull.
Employment jumped by 108,000 in October, far more than the 10,000 that financial analysts expected, Statistics Canada said on Friday. Combined with a modest gain in September, the recent uptick has taken total employment to an all-time high. The unemployment rate held steady at 5.2 per cent as more people participated in the labour market.
It was a similar story in the United States, where 261,000 positions were added in October – handily beating expectations of 195,000.
Analysts were encouraged by the details of the Canadian report: Job creation was entirely in full-time positions and mostly in the private sector. Total hours worked rose 0.7 per cent, an early sign economic growth will remain positive in the fourth quarter.
Compensation, meanwhile, picked up again. Average hourly wages grew 5.6 per cent over the past year, up from 5.2 per cent in September, marking a fifth consecutive month above 5 per cent.
The acceleration in wages will likely draw the Bank of Canada’s attention. The central bank recently hinted its campaign of outsized rate hikes is nearing an end. However, Friday’s report suggested labour demand is strong and employers are willing to pay up – a potential concern, to the extent rising wages put more upward pressure on consumer prices.
The employment surge “makes a mockery of claims the economy is on the cusp of recession and, with wage growth accelerating sharply despite favourable base effects, that means the Bank of Canada may need to raise interest rates by more than it has recently suggested,” Stephen Brown, senior Canada economist at Capital Economics, said in a client note.
Traders are pricing in a 65-per-cent chance the Bank of Canada hikes its key rate by 50 basis points on Dec. 7. (A basis point is one-100th of a percentage point.) Prior to the jobs report, those odds were about 50 per cent.
The central bank raised its policy rate by half a percentage point last week to 3.75 per cent, a surprising move to traders and private-sector economists, who expected a steeper hike of 75 basis points. At the time, the central bank projected economic growth would stagnate – and perhaps turn negative – soon.
“We expect growth will stall in the next few quarters – in other words, growth will be close to zero,” Bank of Canada Governor Tiff Macklem said.
Friday’s labour report belied the weak outlook. The unemployment rate, at 5.2 per cent, is near the lowest on record, while the number of people participating in the labour force jumped by 110,000.
Several industries enjoyed large gains, as well. Employment in construction rose by nearly 25,000, followed by manufacturing (23,800) and hospitality (18,300). Jobs rose in every province, paced by Ontario (43,000) and Quebec (28,000).
“This jobs report checked all the boxes in terms of being a blowout report,” Toronto-Dominion Bank economist Rishi Sondhi said in a report. “The Canadian labour market clearly still has some steam left to it.”
There were, however, signs people are struggling as inflation remains high. More than one-third of Canadians live in a household that finds it difficult or very difficult to meet its financial needs, whether to pay for food, shelter or other necessities, Statscan found. In October, 2020, about one-fifth were in that position.
Despite the recent acceleration in wages, they are still lagging inflation. The Consumer Price Index rose 6.9 per cent in September from a year earlier, ebbing from a near-four-decade-high inflation rate of 8.1 per cent in June. Most of the downward trend can be attributed to lower gasoline prices, although those have risen again in recent weeks.
On Friday, Bank of Montreal said it expects the Bank of Canada’s policy rate to peak at 4.5 per cent next year, up from a previous forecast of 4.25 per cent. Doug Porter, BMO’s chief economist, pointed to several factors for the revised outlook: Friday’s strong labour report, the prospect of continuing steep inflation, the rebound in oil prices and the likelihood of much higher U.S. interest rates.
With a report from Reuters