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Canada's jobs growth stalls in December as wages accelerate

Published 01/05/2024, 08:34 AM
Updated 01/05/2024, 10:00 AM
© Reuters. FILE PHOTO: A help wanted sign at a store along Queen Street West in Toronto Ontario, Canada June 10, 2022. REUTERS/Carlos Osorio/File Photo

By Ismail Shakil and Steve Scherer

OTTAWA (Reuters) -Canada's economy added far fewer jobs than expected in December and the jobless rate remained at 5.8%, but permanent employees' wages increased at the fastest pace in three years, data showed on Friday.

The economy added just a net 100 jobs last month, Statistics Canada said. Analysts polled by Reuters had forecast a net gain of 13,500 jobs and the unemployment rate to tick up to 5.9% from 5.8% in November.

The average hourly wage growth for permanent employees - a figure closely watched by the central bank - accelerated to an annual rate of 5.7% in December - the highest since January 2021 - from 5.0% in November, Statscan said.

"The main story here is we are seeing some cool down in the job market," said Doug Porter, chief economist at BMO Capital Markets. "The one disturbing aspect for the (central) bank is that average hourly wages took a big step up in the month."

The Bank of Canada (BoC) has said wage growth that sticks above 4% would hinder its efforts to sufficiently cool inflation.

The Canadian dollar was trading 0.1% lower at 1.3360 per U.S. dollar, or 74.85 U.S. cents, after earlier touching a 17-day low at 1.3398. The Canadian jobs figures were released at the same time as U.S. data, which showed the economy there added more workers than expected in December.

Wage growth in Canada has remained strong even though job growth has eased in recent months as the economy slows under the impact of the BoC's 10 rate hikes between March 2022 and July 2023. Canada's economic growth was flat in October.

"The stagnation in employment, which follows sluggish GDP growth last year, suggests that the impacts of high interest rates are becoming more widespread across the economy," said Royce Mendes, head of macro strategy at Desjardins Group.

The BoC has left its key policy rate on hold at a 22-year high of 5% since July as it weighs whether rates are high enough to bring inflation back to a 2% target.

But with inflation slowly ticking down and an unexpected contraction in third-quarter gross domestic product, money markets and economists expect the bank to start cutting rates in the first half of 2024.

"With wage numbers like this, the Bank of Canada will remain concerned about the inflation risk being still slanted to the upside," said Derek Holt, vice president of capital markets economics at Scotiabank. "Markets are still aggressive in pricing cuts as soon as the March or April meetings."

Canada's economy added an average of 23,000 jobs per month during the last half of 2023, compared with an average of 48,000 per month in the first half of last year, Statscan said.

December's gains were entirely in part-time work that offset a job losses in full-time work. Employment in the goods sector decreased by a net 42,900 jobs, driven by job losses in manufacturing, agriculture and construction.

Those losses were balanced out by a net 43,100 positions gained in the services sector, led by increases in the professional, scientific and technical services as well as health care and social assistance.

© Reuters. FILE PHOTO: A help wanted sign at a store along Queen Street West in Toronto Ontario, Canada June 10, 2022. REUTERS/Carlos Osorio/File Photo

In the services segment, the wholesale and retail trade sector recorded their third consecutive month of job losses, another sign of a slowing economy.

The central bank's next rate announcement is on Jan. 24, after the release of December inflation data on Jan. 21.

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