It has sparked optimism in financial markets
Canada's job market showed unexpected strength at the beginning of the year, with a surge in new jobs and a dip in unemployment, suggesting potential room for the Bank of Canada (BoC) to consider interest rate cuts if inflation pressures continue to wane.
According to Statistics Canada, the nation welcomed an addition of 37,000 jobs from a rise in part-time positions, marking the first reduction in the unemployment rate since December 2022. This performance also exceeded Bloomberg’s survey of economists' expectations, who had forecasted a more modest job gain of 15,000.
However, wage increases for permanent employees slowed to 5.3% from the previous month's 5.7%. This cooling in wage growth signals a possible easing of inflationary pressures, which might lead the central bank to lower interest rates in the future.
On a regional level, employment gains were notably strong in Ontario, Canada's most populous province. It was concentrated in the services-producing sector, including wholesale and retail trade, finance and real estate, and educational services. Meanwhile, the participation rate slightly declined, reflecting demographic shifts in the labour force, particularly among younger and older age groups.
The Canadian dollar also strengthened following the release of the employment report, reaching its highest level against the yen since 2008. The initial spike in value moderated later on.
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Economists view the latest labour market data as mixed. Indeed senior economist Brendon Bernard highlighted the nuanced nature of the job gains, pointing out that “the composition of job growth didn’t show great signs of labour market health: on-net, gains only came from part-time positions, as well as the public sector.” However, there was a silver lining with hours worked showing the most significant monthly increase in a year, after remaining stagnant for the latter half of 2023.
As the BoC weighs its options, the recent jobs report provides crucial insights. With the next rate decision scheduled for March 6, expectations are that policymakers will keep rates steady at 5% for the fifth consecutive meeting, with potential rate cuts anticipated around mid-2024.
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