By Robb M. Stewart
OTTAWA--A rebound in hiring by Canadian companies last month alongside still hot wage growth adds to recent signals the economy is ticking along and offers additional ammunition for the Bank of Canada to remain on the sidelines.
Statistics Canada's latest survey showed the number of employed working-aged people in Canada climbed 37,300 in January from the month before, more than double the increase economists were expecting and well above the six-month trend following little change the last three months.
While the increase was outpaced by record monthly population growth, a fall in labor-force participation meant the jobless rate dropped for the first time since December 2022, with a dip of 0.1 percentage point to 5.7% where the mean forecast was for an advance to 5.9%.
Hours worked was up for the month, despite an increase in the labor force, supporting the view the economy entered the new year with a tailwind.
"The employment data suggests that June is now more likely for the first Bank of Canada rate cut of this cycle than April," said Royce Mendes, head of macro strategy at Desjardins Capital Markets, who anticipates a bumpy ride for the economy as the effects of past interest rate increases continue to weigh on activity.
Canada's jobs data follow a blowout U.S. jobs report. When calculated using U.S. Labor Department methodology, Canada's unemployment rate was unchanged at 4.8%. In comparison, U.S. employers added 353,000 jobs in January, the strongest in a year, and the unemployment rate held steady at 3.7%.
The Canadian employment numbers add to recent numbers suggesting a recovery by the economy, including modest growth in industry-level gross domestic product in the final two months of 2023 than indicate a fourth-quarter rebound in annualized GDP following a third-quarter contraction, as well as strong home sales in December and January following several months of weakness. That is tempered by weak consumer sentiment and signs households are scaling back spending, as well as recent news of layoffs at some big Canadian companies.
For the Bank of Canada, which has expressed concerns about risks that wage growth becoming sticky and an ongoing driver of broader inflation, the latest data offers mixed reading. Average hourly wages for permanent employees rose 5.3% from a year earlier, in line what economists anticipated and cooler than December's 5.7% advance. But that remains in the 4% to 5% band prevalent for much of the last year and continues to outrun broader inflation, which unexpectedly picked up to 3.4% in December.
Bank of Canada Gov. Tiff Macklem has cautioned the path to getting consumer inflation to a 2% target, which is expected in 2025, won't be smooth. Bank policymakers during last month's meeting, when they again opted to hold the benchmark interest rate steady a fourth time in a row, agreed wage growth would moderate gradually given reports labor shortages were around normal levels and the economy had more supply than demand.
The central bank expects the economy to remain weak in the first half of this year, before picking up in the second half, as past rate increases continue to dampen consumer spending businesses curtailed investment and hiring plans. Inflation is projected to remain around 3% through mid-year.
"Stronger than feared economic data both in Canada and abroad are leaving central banks with flexibility to be patient before starting to ease off the monetary policy brakes," said Nathan Janzen, assistant chief economist at Royal Bank of Canada. "The data today will reinforce that near-term interest rate cuts from the Bank of Canada are unlikely."
Behind the strong-than-expected jobs headlines, details were more mixed.
The employment rate in Canada -- the proportion of the working-age population that is employed -- fell for a fourth consecutive month, slipping 0.1% on the month before to 61.6% in January. The rate has been trending lower after a recent high of 62.5% in January.
The participation rate also declined, easing 0.2 point to 65.3% as the number of people in the workforce was broadly steady and the working-age population jumped 125,500 during the month as the country's population continues to boom.
Yet total hours worked increased 0.6% on-month, and were up 1.1% compared with a year earlier.
All of the of the jobs added in January were in part-time employment, which added 48,900 jobs from the month before when 11,600 full-time jobs were lost.
By class of worker, self-employment was down for the month and private-sector jobs little changed, while the public sector drove employment growth with an increase of 47,600.
The job gains in January were across the services-producing sector, with the first increase for wholesale and retail trade since last June, and gains in other segments including finance, insurance and real estate, educational services, transportation and warehousing, and business, building and support services. There were fewer jobs for the month in the goods-producing sector, with losses in agriculture and construction that offset a rise in manufacturing employment.
The labor market's resilience could yet be further tested. Several big Canadian companies have in recent weeks revealed plans to cut jobs. Telecommunications company BCE said it would reduce its workforce by about 4,800 this year, while energy company Enbridge aims to cut some 650 jobs by the end of this month.
Write to Robb M. Stewart robb.stewart@wsj.com
(END) Dow Jones Newswires
02-09-24 1229ET
