The top concern for businesses is a shortage of labour: Economist
Economists are expecting Canada’s labour market slowdown continued in December.
Experts are forecasting that the Canadian economy added 5,000 jobs in December, according to data tracked by the Bloomberg terminal.
This would mark a continued slowdown in Canada’s job force, after Statistics Canada reported a 10,000 jobs gain in November and a suprise gain of 108,000 jobs in October.
“We're forecasting a 5,000 increase in employment for December and we think unemployment ticked up to 5.2 per cent, from 5.1 per cent in November,” Josh Nye, senior economist at RBC Economics, said in a phone interview on Thursday.
“Canadian jobs data has been pretty volatile. The past three months we’ve seen some decent increases but we’ve had some declines before that, so I think the trend has been for flat or slightly modest job growth, which has still been enough to keep the unemployment rate fairly low.”
Sal Guatieri, director and senior economist at BMO Capital Markets, said he expects average hourly wages to continue with its upward momentum in December.
In November, Statistics Canada reported wages were up 5.6 per cent on a year-over-year basis. This marked the sixth consecutive month of over five per cent wage growth.
IMPLICATIONS FOR BANK OF CANADA
The Bank of Canada’s (BoC) first interest rate announcement of the year is scheduled for Jan. 25.
Guatieri said he thinks this jobs report could have an impact on the BoC’s next decision.
"As far as Bank of Canada implications, if that jobs report comes in with another decent gain, a low unemployment rate and fast wage growth, we think it will push the bank to raise interest rates again later this month, albeit by a smaller 25-basis-points hike,” Guatieri said in a phone interview on Thursday.
In December, the Bank of Canada hiked its key policy rate by half a point to 4.25 per cent.
This marked the seventh straight time that the Canadian central bank hiked interest rates.
Guatieri said there is good reason to believe inflation will keep falling in the new year but the main hurdle is still the Canadian labour market.
“Commodity prices are down, in particular energy prices, and supply chain disruptions have lightened somewhat; but the problem is the tightness in labour markets which is contributing to strong wage growth and adding persistence to inflation, basically slowly it's rate of decline,” he explained.
”I think this jobs report would probably nudge the Bank of Canada to raise interest rates on Jan. 25.”
NEW YEAR, SAME EMPLOYMENT TRENDS
Andrew Grantham, executive director and senior economist at CIBC Capital Markets, said he thinks the labour demand slowdown that emerged in 2022 will continue this year.
“2023 is going to likely be a continuation of some slowing in the employment growth rate and maybe some months of employment declines because interest rates have risen so demand is going to fall,” Grantham said in a phone interview on Thursday.
“People will not need the same amount of staff, particularly in areas that are slowing the most already, like construction and real estate.”
He also said many businesses had to hire additional workers during the COVID-19 pandemic due to a higher number of employees calling in sick.
“Unfortunately, given the new variants that are happening and that people are still getting sick, I don't think that's going to solve itself in 2023,” Grantham explained.
“So that's something that should prevent a big rise in the unemployment rate, even though the consensus is revolving around this recession or near-recession scenario for the economy as a whole.”
Statistics Canada will release its December jobs data report on Friday at 8:30 a.m. EST.