The Canadian economy remained resilient on the employment front in September
The Canadian economy’s significant employment gains in September will likely put more pressure on the Bank of Canada as it approaches its next policy rate announcement, according to market observers.
Data from the national statistics agency indicated that 64,000 jobs were added to the national economy last month, far exceeding earlier consensus predictions of a 20,000 gain.
And while the unemployment rate was steady at 5.5%, Statistics Canada said that hourly wages surged by 5.3% year over year, markedly outpacing the most recent reports of 4% annual inflation.
Dawn Desjardins, chief economist at Deloitte Canada, said that she “absolutely” agrees that labour market strength will heavily weigh on the BoC’s next steps.
“If we’re seeing the economy really heed to these higher interest rates, it might just see the bank decide to step back and keep these higher interest rates,” she told BNN Bloomberg.
At the same time, stronger wage growth would help more Canadians to better manage ever-rising costs of living.
“We have seen now real wage growth for five consecutive quarters and that is a mitigating factor for the household sector,” Desjardins said.
The Bank of Canada's recent decision to hold rates doesn't signal an end to potential rate hikes, warns James Laird, co-CEO of Ratehub and president of CanWise.
— Canadian Mortgage Professional Magazine (@CMPmagazine) September 11, 2023
Full article: https://t.co/Tt2uOIZbHq#mortgageindustry #ratehikes #interestrates #mortgagebroker
Wage growth likely to complicate BoC’s policy decisions
However, this same robustness in wage growth could become problematic for central banks looking to bring inflation down in the long term.
“Wages are looking incredibly sticky,” said Tiffany Wilding, managing director and North American economist at PIMCO. “Although the Bank of Canada is close to being done, it’s certainly possible for them to get in one more rate hike in October.”
Other analysts believe that the full impact of the central bank’s rate hikes has yet to manifest in the Canadian economy.
“We don’t foresee any hikes in 2024,” said Earl Davis, head of fixed income and money markets at BMO Global Asset Management. “That speaks to the lag – give it a little bit of time to see the lag.
“The number one thing that we’re looking at is employment, not economic growth, and that’s where the difference comes in. That’s why we're not seeing the pullback yet. For us to change our call to say maybe there’ll be an ease in 2024, we have to see the unemployment numbers going higher, and we're not seeing that.”
