The Canadian economy started the year with a flurry of new jobs, but the underlying details were decidedly mixed, with hiring concentrated in the public sector and in part-time work.
Employment rose by 37,300 in January and the unemployment rate fell a tick to 5.7 per cent, the first decline in just over a year, Statistics Canada said Friday in a report. Financial analysts were expecting an increase of 15,000 jobs last month, after a tepid gain in December.
Despite the lower unemployment rate, the employment rate has also fallen for four consecutive months, because job growth isn’t close to offsetting a surge in population. Over the past year, employment has risen by 345,000, while the population aged 15-plus has jumped by one million.
In large part, the unemployment rate managed to fall in January because a smaller proportion of people were participating in the labour market.
While there were negative aspects to Friday’s report, analysts said the Bank of Canada is unlikely to lower interest rates before June, given rising employment and hot wage growth.
“The employment data suggests that June is now more likely for the first Bank of Canada rate cut of this cycle than April,” Royce Mendes, head of macro strategy at Desjardins Securities, said in a client note. “That said, recent announcements of layoffs at major companies across industries in Canada still suggest that the economy is set for a bumpy ride as the past effects on high interest rates continue to weigh on activity.”
The entirety of job creation in January was in the public sector and in part-time work, which rose by 47,600 and 48,900 positions, respectively. Despite those part-time roles, the number of hours worked across the economy increased 0.6 per cent during the month.
There was a strong divergence at the industry level. Employment rose by more than 31,000 in wholesale and retail trade, whereas it fell by roughly 30,000 in the hospitality industry. The finance, insurance and real estate industry enjoyed a robust month of hiring, with more than 28,000 new jobs. Educational services added another 27,700 roles.
Wages are continuing to grow quickly. The average hourly wage rose 5.3 per cent on a year-over-year basis, down slightly from a 5.4-per-cent pace in December. The Bank of Canada has repeatedly flagged elevated wage growth as a challenge in bringing inflation back to its 2-per-cent target.
Statscan noted in Friday’s report that female youth labour participation had fallen to its lowest level in more than 20 years. The agency said there has been a “strong downward trend” since last February, which has seen the participation rate ebb to 62.5 per cent from 66.7 per cent over that time.
Participation rates have also been falling for young men, though not to the same degree. Statscan defines youth as people aged 15 to 24.
The decline in labour participation is accompanied by a rise in unemployment, “indicating that labour market conditions for youth have become more difficult in the past year,” Statscan said.
Meanwhile, the 15-plus population grew by nearly 126,000 in January, the largest monthly increase in Labour Force Survey records that date back to 1976. However, employers aren’t creating jobs at nearly the same pace. As a result, the employment rate has eased to 61.6 per cent from a recent high of 62.4 per cent early last year.
The labour market has softened in recent months – highlighted by fewer job vacancies and a rising unemployment rate – as the economy adjusts to tighter lending conditions. The Bank of Canada’s benchmark interest rate sits at 5 per cent, the highest level since 2001.
The focus, however, has turned to when the central bank will start to lower interest rates, given marked progress in bringing inflation under control and a slowing economy. Many economists and investors had pencilled in the BoC’s April meeting as the potential start of rate cuts.
But a recent spate of strong economic data has forced them to revise their timelines. Interest-rate swaps, which capture market expectations about monetary policy, now point to the first BoC rate cut occurring in June or July.
On Friday, analysts at Desjardins and CIBC Capital Markets predicted one fewer quarter-point rate cut this year than they had previously.
Andrew Grantham, senior economist at CIBC, said in a research note that “today’s data confirm that the Bank won’t be in a rush to cut interest rates.”
Matt Lundy