Job Growth Slows in February — but Still Beats Expectation

The Canadian labour market added a surprising 21,800 jobs in February. This was 11,800 higher [1] than some analysts had predicted in light of the Bank of Canada’s ongoing attempt to engineer an economic slowdown. However, it was significantly lower than the staggering 115,000 jobs[2] that were added in January.

According to Statistics Canada[3], most new jobs were created in the health care and social assistance sectors (+15,000), followed by public administration (+10,000), and utilities (+7,500). On the other side of the spectrum, fewer people worked in business, building and other support services (-11,000). Overall, the unemployment rate held steady at 5.0%.

Average hourly wages

Rose 5.4% (+$1.69) on a year-over-year basis, reaching $33.16 in February. Year-over-year growth in average hourly wages in February was the same for men and for women. Growth was higher than in January (+4.5%) and December (+4.8%), but lower than in November (+5.8%) (not seasonally adjusted).

Employment increased in New Brunswick (+5,100; +1.3%), Manitoba (+4,900; +0.7%), Newfoundland and Labrador (+3,800; +1.6%) and Prince Edward Island (+1,700; +2.0%). Employment declined in Nova Scotia (-4,700; -0.9%). There was little change in employment in the other provinces.
Also of particular note: employment for women aged 55 to 64 rose by 30,000 (+1.9%) in February. Over 6 in 10 (60.8%) women in this age group were employed in February, which represented the highest proportion on record.

Generally, reaction to the February jobs numbers tells the same story:

Things seem to be trending in the right direction, but the Bank of Canada must monitor the situation very closely, and be prepared to act — i.e., hike the overnight rate — if the labour market refuses to cool down. Since January 2022, the overnight rate (which is what financial institutions use to price their mortgages and other loans) has surged a staggering 1700% from 0.25% to 4.5%.

“With the low unemployment rate putting upward pressure on wage growth, the Bank of Canada will continue to stress that it may still need to raise interest rates further,” said Stephen Brown[4], deputy chief North America economist at Capital Economics.

“The still historically low unemployment rate and strong wage growth will keep the Bank of Canada leaving the door open to future rate hikes, although we still don’t think the data will be strong enough for policymakers to actually walk through that door,” said Andrew Grantham[5], senior economist at CIBC Capital Markets, says.

“With weak economic growth for the next couple of quarters, pressures in product and labour markets are expected to ease,” said the Bank of Canada[6] in a press release, after its decision on March 8 to keep the overnight rate steady at 4.5%. “This should moderate wage growth and also increase competitive pressures, making it more difficult for businesses to pass on higher costs to consumers. Overall, the latest data remains in line with the Bank’s expectation that CPI inflation will come down to around 3% in the middle of this year. Year-over-year measures of core inflation ticked down to about 5%, and 3-month measures are around 3.5%. Both will need to come down further, as will short-term inflation expectations, to return inflation to the 2% target.”

Still, some observers do not share the Bank of Canada’s confidence that pressures in product and labour markets are likely to ease anytime soon.
“While somewhat dull in comparison to the blowout in the prior month … this result is far too strong for the BoC’s comfort,” said Douglas Porter[7], chief economist at BMO. “The economy is likely just one wrong turn on the inflation front away from the bank flipping back into rate-hiking mode.”
“For the Bank of Canada, the headline … might be more ‘normal’ compared to prior months, but it is still too high,” said James Orlando, senior economist at TD. “Although the BoC has been effective at slowing the parts of the economy most sensitive to interest rates, and it has seen inflation decelerate confidently, a more decisive turn is needed.”

[1] Canada Feb job gains surprisingly strong, upping pressure for higher rates   By Ismail Shakil and Steve Scherer
[2] The Daily Chase: Canada adds 150,000 jobs in January; Magna misses Q4 estimates   By Ian Vandaelle, The Canadian Press
[3] Labour Force Survey, February 2023 By Statistic Canada
[4] BoC rate hike bets evaporate: How money markets and economists are reacting to Friday’s jobs data and bank jitters By Darcy Keith
[5] Canada’s jobs market ‘refuses to cool.’ What does that mean for our central bank? By Craig Lord
[6] Bank of Canada maintains policy rate, continues quantitative tightening By Bank of Canada
[7]  Stronger-than-expected job numbers could tempt Bank of Canada to raise interest rates, analysts say By Josh Rubin