Interest rate | Jobs put pressure on the Bank of Canada

(Ottawa) The Bank of Canada will be in no rush to cut interest rates after Statistics Canada reported a larger-than-expected job gain last month, economists say.

The federal agency’s labor force survey released Friday shows the economy added 37,000 jobs in January after months of almost no change in employment.

Canada’s unemployment rate slipped 0.1 percentage point to 5.7% last month, marking the first decline since December 2022. In Quebec, employment was little changed for the fourth consecutive month in January and the unemployment rate reached 4.5%, down 0.2 percentage points.

“I would say the labor market is tighter than expected, but not necessarily stronger than expected,” said Andrew Grantham, director of economics at CIBC. That’s because, certainly, employment has continued to grow a little faster than the consensus expected. But that really pales in comparison to the sharp increase in population. »

The Canadian population aged 15 and over increased by 0.4% between December and January, far outpacing the 0.2% growth in employment.

The labor market cooled significantly in 2023 as high interest rates weighed on consumer spending and business investment, pushing the nation’s unemployment rate to 5.8% from 5.1% in April. % in December.

Although the jobs report has some weaker elements, the relatively good state of the labor market suggests to economists that the central bank may be taking its time when it comes to cutting interest rates.

“Today’s data is certainly not going to accelerate the Bank of Canada’s timetable,” Mr. Grantham said.

CIBC is not changing its forecast on the timing of the first rate cut, as it still expects the central bank to lower its key rate starting in June. But she now expects the bank to cut rates overall by a smaller amount this year.

Same story at Desjardins, which expects the Bank of Canada to begin reducing its key rate in the second quarter of 2024. “We still believe that a less restrictive monetary policy will be necessary, since consumers and businesses across the country are increasingly feeling the effects of past increases in borrowing costs. At the start of the year, however, it is undeniable that the strong growth in population and wages accentuates the risks of rising inflation,” estimates Marc Desormeaux, senior economist at Desjardins.

Wages continue their momentum

Workers’ wages continued to grow rapidly last month as Canadians seek compensation for past inflation. The average hourly wage, which has been growing steadily at an annual rate of 4 to 5 percent, jumped 5.3 percent compared to the same month last year.

These still vigorous wage increases over 12 months harm efforts to control inflation, according to Desjardins. “The Bank of Canada closely monitors the salaries of permanent employees to measure signs of transmission of their increases to inflation. The year-over-year increase was more modest in January than in December, but it still highlights the risk of rigidity in wage growth that the Bank of Canada highlighted in its recent announcement of rate and that it will continue to monitor closely,” underlines Marc Desormeaux.

Statistics Canada says wage growth has been stronger for women and higher-income earners. Although men continue to earn more on average than women, women’s average hourly wages increased by 6.2%, compared to 4.4% for men.

For employees in the top 25% of the pay scale, their salaries increased by 5.9%, compared to 4.6% for those in the bottom 25%.

The Canadian labor market has been supported by strong population growth, driven by permanent and temporary immigration.

Compared to last year, the economy created 345,000 jobs, while the working age population increased by 1 million people.

While the Bank of Canada maintains its key interest rate at 5%, economists’ forecasts suggest that unemployment will increase throughout this year.


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