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Falling jobless rate, rising wages unlikely to sway Bank of Canada, economists say

Construction of an office tower in downtown Toronto.

Fred Lum/The Globe and Mail

Canada's jobless rate fell to 5.8 per cent in February and wages in British Columbia and Ontario accelerated. But economists say the positive labour market signs will not be enough for the Bank of Canada to raise interest rates.

Last month's "solid wage numbers, while welcome, are unlikely to change the bank's cautious stance," said Brian DePratto, economist with Toronto-Dominion Bank.

Ontario's wages have been climbing steadily since last summer, with the average hourly rate expanding by 3.5 per cent over February of last year. B.C.'s average hourly earnings surged above 5 per cent over the same period. The western province has the lowest unemployment rate in the country followed by Ontario.

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Their wage gains helped bolster the nation's average hourly rate by 3.1 per cent to $26.92 over the same period, according to Statistics Canada's labour force survey released on Friday.

It was the second consecutive month of earnings climbing over 3 per cent – a healthy pace compared with a year ago when wage growth was just above 1 per cent despite rapid job creation.

Over all, Canada's jobs market rebounded slightly from the previous month's losses and added 15,400 net new jobs.

But although the Bank of Canada's monetary policy is guided by data such as jobs and wage inflation, the labour force survey numbers will likely be heavily discounted.

The central bank's January monetary policy report refers to a new gauge for wage growth called wage-common, which is a composite of earnings from the labour force survey, employer payrolls and two other economic reports: productivity accounts and national accounts.

In wage-common, the labour-force survey's hourly wage growth "only gets a trivial 5 per cent weight," according to Derek Holt, economist with Bank of Nova Scotia capital markets.

The national and productivity accounts are more influential. They both showed compensation increasing.

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"Two pieces of evidence that wages are indeed picking up," said Douglas Porter, chief economist with Bank of Montreal.

However, the Bank of Canada kept its key lending rate at 1.25 per cent at last week's scheduled rate announcement and said wage growth "remains lower than would be typical in an economy with no labour market slack."

TD's Mr. DePratto said it seems that the central bank has set wage gains from 2007 and 2008 as their guideline, when wage growth topped 7 per cent in national account measures.

"That bar is set very high, if that is indeed the bar," he said.

According to the Bank of Canada's calculations, the national and productivity accounts showed wage inflation below the labour-force survey's 3.1 per cent growth.

The total compensation for each hour worked for the total economy had an increase of 2.9 per cent year over year for the fourth quarter, while the national account wage measurement had a gain of 2.2 per cent for the same period, according to an e-mail from the central bank.

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The Bank of Canada said wage-common is a very useful metric, though not the only one used by the bank. The data is not available on the central bank's website, though the bank said it is working to get the information online.

February's jobs report showed the unemployment rate fell back to the lowest level since October, 2007. Although there was a loss of full-time jobs last month, over the year full-time employment has increased by 1.9 per cent.

It is still too early to see how employers are responding to Ontario's minimum-wage hike. The province raised the rate to $14 from $11.60 in January. However, the industry with the majority of minimum-wage earners – accommodation and food services – continued to add jobs for the second consecutive month.

"We have to be careful not to read too much into it too early. It may take more time to play out," said Mr. Porter, who believes a year of data is needed to get a proper reading on the impact of the minimum wage.

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