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Canadian Labour Markets End 2018 on a Softer Note

9.3k more Canadians were working, on net, in December 2018. The unemployment rate remained at 5.6%, as roughly the same number of Canadians joined the labour force.

The quality of the gains was somewhat lacking. The net increase was driven by part-time jobs (+28.3k), as full-time employment pulled back (-18.9k). The increase was entirely down to self-employment (+46.4k), as both private and public sector employment fell on net (-20.0k and -17.1k respectively).

Older Canadians again drove employment gains. Core aged (25-54) employment rose 16.7k, and employment for those aged 55+ was up 8.8k. Net employment fell 16.2k for those aged 15 to 24.

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Breaking it down by industry, manufacturing led the way, adding 23.9k net positions in December, while the service sector (-13.3k) was held back by trade (-26.1k). Among the provinces, Ontario shone, as its unemployment rate fell 0.2 percentage points to 5.4%, offsetting softer performances elsewhere.

Wages have been a soft spot of late, and remain so: average hourly earnings for permanent employees were up just 1.5% year-on-year (y/y) in December – breaking a 6 month deceleration trend, but only matching November’s pace. Aggregate hours worked were effectively flat.

Stepping back from the monthly noise, the trend in labour markets is healthy. The six-month trend in hiring stands at 30k per month, and year-on-year employment growth was 0.9% in December, driven by full-time gains (+1.2%) and largely by private employment (+0.8%).

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Key Implications

Call this one ‘less than meets the eye’. The headline unemployment rate may have defied expectations to remain at a record low 5.6%, but the way we got there was less encouraging. Not only were the job gains entirely in part-time work, they were also driven by self-employment as both private firms and the public sector shed jobs in December. This left aggregate hours worked unchanged – hardly encouraging, even if it does come after a sizeable rise in the month prior.

Perhaps most importantly, the deceleration of wage growth came to an end, for a month at least, but there was no acceleration to be seen as the key measure remained at just 1.5% year-on-year. So, while many measures would suggest the we have a tight labour market, the signal from wages says otherwise. Without this pre-condition, it is difficult to see much in the way of fundamental upward pressure on Canadian inflation.

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Indeed, we suspect that behind the scenes, the Bank of Canada is also a bit puzzled by the combination of healthy trend employment gains and decelerating wages. At the moment, there are more pressing matters impacting the Canadian economy. However, wages are near the core of the Bank’s mandate. It is definitely not our base case, but without bottom-up wage pressure, further monetary tightening is clearly not urgent.

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