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Canadian January Employment Bounces Back

Highlights:

  • Employment jumped 66.8k which was up strongly from the 7.8k recorded in December and market expectations of a 5k increase.
  • The solid increase in employment did not prevent an unexpectedly large 0.2 percentage point jump in the unemployment rate to 5.8% as it was outpaced by an even larger 104k surge in the labour force.
  • Wage growth for permanent employees did rise to 1.8% in January from 1.5% in December though this is still indicative of flat real wages despite the low unemployment rate.

Our Take:

Canadian employment growth bounced back in January rising a stronger-than-expected 66.8k following gains of 7.8k and 78.4k in December and November, respectively. The quarterly pattern of employment growth had appeared to be slowing over the first half of 2018 though the pace of hiring started to pick up over the second half of that year with today’s report indicating this trend continuing going into the start of 2019. The report did indicate an unexpectedly large jump in the unemployment rate to 5.8% from 5.6% in December despite the surge in hiring as it was more than outpaced by the labour force surging 104k.

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Labour markets still look solid. However, from the Bank of Canada’s perspective, a more telling factor in today’s report that argues against any rush to hike rates are indications that wage gains remain moderate. The annual increase in average hourly earnings did rise to 1.8% in January from 1.5% in December though it is still indicative of flat real wage growth. Our forecast continues to assume further tightening, albeit at a gradual pace, with the overnight rate rising 50 basis points over the course of 2019. However, such is contingent on further indications of continued strength in the economy along with confirmation of greater wage pressures building in the system.

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