BoC to remain humble, consider sticky inflation: Desjardin's Jimmy Jean
The Canadian economy added 35,000 jobs in March amid strong population growth, keeping the unemployment rate steady at near record lows, even as the economy wrestles with high interest rates.
In its latest labour force survey, Statistics Canada said Thursday the unemployment rate came in at five per cent for the fourth consecutive month.
The job gains were made primarily in the private sector. Employment was up in transportation and warehousing, business, building and other support services, as well as finance, real estate, rental and leasing.
Meanwhile, jobs were lost in construction, other services and natural resources.
Brendon Bernard, a senior economist at Indeed, said the report shows the labour market is still doing well, "despite a lot of economic uncertainty."
But Bernard cautioned that interpreting the job numbers is a bit tricky because Canada is also seeing its population grow rapidly.
Statistics Canada said the population grew by 0.3 per cent last month, while employment rose by 0.2 per cent.
"The report might not be quite as strong as the headline number might suggest," Bernard said. "But at the same time, that five per cent unemployment rate highlights the big-picture story, which is that the job market remains in solid shape."
Over the last six months, the Canadian economy has added nearly 350,000 jobs, surprising economists who are anticipating a slowdown. It's also making it harder to interpret what is going on in the economy and how high interest rates are affecting it.
RBC assistant chief economist Nathan Janzen said what's happening in the labour market is more than "just a population growth story."
"It's also ... labour demand for workers outpacing available supply," he said.
The Bank of Canada is concerned that if the labour market stays this strong, wages may continue to grow rapidly, something that would make a return to two per cent inflation more challenging.
The central bank will make its next interest rate decision on April 12. And while this latest job report doesn't show any cooling yet, the Bank of Canada is expected to continue holding its key interest rate steady at 4.5 per cent.
As employers keep their hiring appetite for now, wages continued to grow in March. Average hourly wages rose 5.3 per cent on an annual basis.
The Statistics Canada report showed those who are unemployed were less likely to stay out of work for a long time. The percentage of those who were unemployed in March that had been out of work for 27 weeks or more was 16 per cent, down from 20.3 per cent a year earlier.
However, the labour market tightness isn’t expected to last forever. The Bank of Canada’s aggressive rate hikes since March 2022 are expected to weigh on the economy, with economists forecasting a significant slowdown this year.
Surveys released by the central bank earlier this week showed consumers and businesses are preparing for that slowdown. Consumers said they’re planning to pull back on spending, while businesses are anticipating sales to slow.
That pullback is expected to filter through to the labour market and lead to a rise in unemployment.
And while businesses continued to report labour shortages as a top concern, the surveys showed there are signs that the labour market is easing.
Bernard said job postings on Indeed are still above pre-pandemic levels, but they've fallen by 15 per cent since last year.
Job vacancies reported by Statistics Canada have also fallen from the record-high levels reached last year.
Janzen said these "cracks" in the labour market will eventually turn into more modest job reports and a rise in unemployment.
"I think there are some cracks out there that are still forming, so we still expect the economy to weaken from here," Janzen said.
"But it's been a pretty strong start to 2023."