Canada jobs blowout: what the economists say

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The Canadian jobs market just keeps surprising economists.

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The economy gained 34,700 jobs in March, beating analysts’ estimate for an increase of 7,500, Statistics Canada reported on April 6.

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Canada has been on a jobs creation tear. According to the national agency, the number of people employed rose 383,000 (1.9 per cent) since September of last year, with a good chunk of the gains coming from supersized increases of 150,000 in January and 69,000 in December.

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For the fourth straight month, the unemployment rate held steady at five per cent, hovering just above the historic low of 4.9 per cent recorded in June and July of 2022.

Here’s what the economists are saying about the job numbers and what they mean for the Bank of Canada and interest rates when it next meets on April 12.

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James Orlando, TD Economics

“The Canadian jobs market shows no sign of slowing. Today’s gain of 35,000 jobs extends the streak of monthly employment gains to seven months, bringing the tally to 382,000 jobs gained over that time. Looking beyond the headline, the fundamentals remain solid. Workers continue to clock in more hours every week and their wages are rising. With all the jobs gained in the private sector (although nearly half were part-time), there is strong underlying momentum that continues to build in the Canadian economy.

“The Bank of Canada knows the economy is running too hot. Continued labour market strength is boosting the incomes of Canadians, enabling them to increase their spending notwithstanding the high interest rate environment. Today’s report corroborates the signal we have been getting from credit/debit card spending data, and supports our forecast for Canadian GDP to come in around two per cent for the first quarter of 2023. That is not the kind of growth the BoC wants to see when it is trying to ensure that inflation gets back to target. Although today’s report isn’t enough to get the bank off the sidelines, the fact that nothing so far seems to be able to crack the Canadian jobs market juggernaut must be worrying.”

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David Rosenberg, Rosenberg Research & Associates Inc.

“All of the employment gain and then some occurred in one sector — transportation and warehousing. A five per cent chunk of the employment pie saw job creation of 40,600 and the other 95 per cent posted a 5,900 job decline. A highly skewed and misleading report.

“The sharp fall-off in the cyclically sensitive goods-producing industries (-40,900; sharpest drop since April 2020!) immediately caught our attention — as it points to unfavourable read-throughs on the health of the economy. Before the pandemic, we hadn’t seen a monthly plunge this large since April 2009 when the global financial crisis was reaching its maximum pain-point. Every sub-sector in this grouping was lower on the month, with the bulk of the losses observed in construction (-18,800) as the residential real estate market continues to reel from last year’s rate hikes (and more pain likely lies ahead on this front as the lags continue to work their way through the economy). Natural resources (-10,600) and manufacturing (-6,100) also posted notable declines.

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“All in, the upside surprise on the headline print masked some weaker developments beneath the surface — particularly the unfavourable industry composition shift away from the economically sensitive goods sector and the significant role played by part-time/youth job creation. And, crucially, given the softer-than-expected wage growth number, we don’t believe there is anything in this report to move the needle on the Bank of Canada’s “conditional pause” strategy.”

Douglas Porter, BMO Economics

“The Canadian jobs machine just keeps on keeping on. The combination of still-strong job growth, a tight jobless rate, and plus-five per cent wage growth is likely still too hot for the Bank of Canada’s comfort. Even so, this generally solid report will not prompt the BoC off the sidelines. However, we’ll likely need to soon see some softening in growth and the labour market to help ensure that underlying inflation is headed back to the bank’s two per cent target.”

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Tony Stillo, Oxford Economics

“March employment was slightly higher than we expected. Strong growth in jobs and hours worked in early 2023 have led us to revise up our GDP forecast to positive growth for Q1. However, we still believe a recession is unavoidable this year, which means job losses likely lie ahead.

“The economy and labour markets look to have performed better in Q1 than the Bank of Canada’s latest forecast. While we still expect the Bank to hold rates steady next week, it will maintain a hawkish bias despite the recent financial turmoil.”

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Charles St-Arnaud, Alberta Central

“Today’s Labour Force Survey data suggest the labour market in Canada remains robust and resilient. The low unemployment rate continues to signal that the labour market remains very tight, something the Bank of Canada is closely monitoring. Moreover, the report also shows that wage growth remains above five per cent and higher than inflation, with average wages (for permanent employees) increasing by 5.2 per cent year-over-year.

“A robust labour market and strong wage growth are a challenge for the Bank of Canada. As we have explained on numerous occasions, the BoC needs to slow growth and create some excess capacity in the economy to fight inflation. This will likely lead to a rise in the unemployment rate and job losses. With this in mind, continued strength and tightness in the labour market may not be a welcomed outcome for the BoC. Moreover, the central bank is becoming increasingly concerned with the disconnect between strong wage growth and weak labour productivity.

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“The continued resilience of the labour market and the strength in the economy in the early part of 2023 raises the odds that the BoC may need to increase its policy rate. However, whether the BoC hikes further depends on inflation and the growth outlook. Moreover, the recent banking woes in the U.S. and Europe suggest caution is warranted, as the Boc may need to balance fighting against inflation and increased financial stability risks.”

Nathan Janzen, RBC Economics

“Labour markets have gotten off to an exceptionally strong start in early 2023. Still, early cracks have been forming under the surface — even as hiring has remained very strong, job openings have been edging lower and the BoC’s Q1 Business Outlook Survey showed the intensity of labour shortages easing. The labour market itself is a lagging economic indicator and headwinds from aggressive central bank interest rate hikes over the last year continue to build. The BoC is widely expected to hold the overnight rate at 4.5 per cent at next week’s policy decision and we expect it to stay there for the rest of this year.

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Relative to the abnormally large job gains that we’ve seen in the post-Covid era, this isn’t a particularly large employment increase, but it’s still a strong release relative to the 2000-2019 average of 19.1k. On a year-over-year basis, wage growth edged down to 5.2% from 5.4%, missing expectations for a small gain. The dip in wage growth is helpful in reducing services-driven inflation, but it is still well above the recent low of 4.5% attained in January.

Jay Zhao-Murray, currency market analyst, Monex Canada

“Relative to the abnormally large job gains that we’ve seen in the post-COVID era, this isn’t a particularly large employment increase, but it’s still a strong release relative to the 2000-2019 average of 19,100. On a year-over-year basis, wage growth (for permanent employees) edged down to 5.2 per cent from 5.4 per cent, missing expectations for a small gain. The dip in wage growth is helpful in reducing services-driven inflation, but it is still well above the recent low of 4.5 per cent attained in January.

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The clashing signals from job and wage growth roughly net each other out. The labour market is still tight, but further job gains aren’t necessarily generating further wage pressures — a key consideration for inflation. For the Bank of Canada, the data unlikely moves the needle and we continue to expect them to hold rates at their next meeting. Instead of prioritizing the macroeconomic data, financial stability considerations are more likely than not to determine the next course of action once the bank departs from its current stance of holding rates. Given the still tentative backdrop in financial markets, especially given the emergence of recession risk south of the border, we think the BoC will temper its hawkish bias at its next meeting on Wednesday (April 12). The risk of remaining hawkish is simply too great.

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