News Analysis
Canada’s January jobs report showed considerable strength in many areas, despite economists’ and the Bank of Canada’s (BoC) forecasts being wrong. This was another hit to the central bank’s credibility, according to a former chief economic analyst at Statistics Canada.
“They’ve had trouble with the labour market and inflation in the last couple of years,” Philip Cross, an expert on the labour market and Munk senior fellow at the Macdonald-Laurier Institute, told The Epoch Times. “Sometimes you have to be humble and admit you don’t know everything.”
Employment rose by 150,000—10 times more than the consensus forecast—and the unemployment rate stayed at 5 percent. Most of the jobs created were full-time, and the employment rate (percentage of people aged 15+ employed) rose to 62.5 percent, the highest since May 2019.
In its Jan. 25 monetary policy report, the BoC said, “Monetary policy appears to be slowing the demand for labour. Employment growth has been weaker in sectors that are sensitive to changes in the interest rate including manufacturing, construction, and trade.”
However, construction grew by 16,000 jobs and is one of the fastest-growing industries over the last 12 months. Wholesale and retail trade led all service sector employment in January by adding 59,000 jobs.
Cross says the strong report is due to both supply and demand factors—employers are concerned about worker shortages and are hiring more when they can, and people who are worried about their worsening financial situation are returning to the labour market. He also said a warmer-than-usual January “seems to have helped boost the numbers a bit.”
Trending Higher, Not Lower
Bay Street economists were quick to say that the BoC will wait for more data before it decides that the economic outlook has markedly deviated from its assessment in January.
“The narrative can flip on a dime if the next print is deeply negative as can often happen with the wild Canadian jobs data,” says a Feb. 10 note from TD.
RBC said after the release of the jobs report that the BoC’s 4.25 percentage points of rate hikes are still making their way through to household and business debt payments, which will ultimately erode demand and push unemployment higher through to the end of the year.
“With record high participation and fewer unemployed Canadians to fill jobs, job creation is not sustainable at the current pace,” RBC said in a note on Feb. 10.
Statistics Canada also noted that the upward trend in total employment that started in September 2022 has resulted in a total of 326,000 jobs added.
“The fact is, though, that this follows three straight, large increases. This is not an isolated blip,” Cross said.
A similar phenomenon took place in the United States in January, where 517,000 jobs were added amid market expectations of 189,000. The U.S. unemployment rate dropped to 3.9 percent—the lowest since May 1969.
While Cross says monthly employment data in Canada is very volatile and hard to forecast, the U.S. numbers are more reliable as they are based on payroll data and not household surveys. The upshot, he says, is that the strong upward trend in the United States suggests a similar trend for Canada.
Cross adds that people have every reason to believe the BoC is missing its forecast again, and that despite saying it is taking a pause in raising rates to monitor the impact of rate increases on the economy, it could start having to raise rates again.
TD said that the January jobs report does introduce some risk for the BoC’s April meeting.
Incentivized Back to Work
The BoC reported that growth in the labour force has slowed since the pandemic took hold—from about 1.4 percent in 2017–19 to 0.9 percent in 2020–22—due to population aging and the interruption of immigration flows in 2020.
But Statistics Canada reported that in recent months the labour force has outpaced population growth. From July 2022 to January 2023, the labour force grew by 336,000, or 1.6 percent.
Cross suggests that one factor explaining the number of people looking for jobs—in addition to immigration, temporary foreign workers, and students—is the “pinch from higher prices” and that some are being pushed to re-enter the workforce or get a second job to keep up with costs. Now as well, far fewer people can depend on the government’s pandemic support programs.
“People aren’t getting the amount of government support they were and that’s an incentive for people to to be more self-reliant and go out and fend for themselves in the labour market,” Cross said. “And given how tight the labour market is, this is a really good time to look for a job.”