Canada’s job growth well above expectations in January, wages ease
Canada’s economy added a net of 37,300 jobs in January, surpassing expectations. This positive employment trend is likely to influence the Bank of Canada’s (BoC) decisions regarding interest rates.
The unemployment rate in Canada decreased from 5.8% in December to 5.7% in January. This decline was attributed to fewer people actively seeking employment.
The participation rate, representing the proportion of the working-age population in the labor force, fell slightly from 65.5% in December to 65.3% in January.
While wage growth for permanent employees slowed slightly from 5.7% in December to 5.3% in January, the average hourly wage remains a crucial factor for the Bank of Canada to monitor, as it can impact inflation.
The Bank of Canada has maintained its key overnight rate at 5% since July. Despite pressure to cut interest rates, the recent positive economic indicators, especially in job growth, suggest that the central bank may be in no hurry to make such a move.
The BoC is striving to bring inflation back to its 2% target. Persistent underlying inflation, which was at 3.4% in December, has led the central bank to exercise caution in adjusting interest rates.
Money markets are pushing back expectations for a first quarter-point reduction in interest rates, now projected for July. The solid January data may further reinforce the expectation that the central bank will not rush to cut rates.
The BoC expects economic growth to remain soft in the first quarter of 2024, with a modest expansion of 0.8% for the full year. Wage growth, a factor that can fuel inflation, has consistently been above 5% throughout the previous year.
The Bank of Canada closely monitors employment data to assess the overall health of the economy. Additionally, annualized wage growth is a key metric to track changes in purchasing power, influencing the central bank’s efforts to manage inflation and interest rates.
In summary, the recent positive job market data suggests that the Bank of Canada is likely to remain cautious and may not rush to cut interest rates, despite inflation concerns and market pressures. Economic analysts are keeping an eye on upcoming data releases to gauge the trajectory of the Canadian economy.