Canada’s labor market blew past expectations last month after the nation lifted COVID-19 restrictions meant to contain the spread of the omicron variant.

The country added 336,600 jobs in February, more than making up for losses in the previous month, Statistics Canada reported on Friday from Ottawa. Economists in a Bloomberg survey were expecting a gain of 127,500. 

The unemployment rate fell to 5.5 per cent, from 6.5 per cent in January. That’s the first time the jobless rate has fallen below its pre-COVID level, and it’s now near a five-decade low. 

Friday’s report shows the economy is back up against what the Bank of Canada believes is full capacity and will reinforce expectations for as many as six more interest rate increases this year after the central bank began a hiking cycle earlier this month. 

The loonie jumped as high as $1.2715 per U.S. dollar and bonds tumbled. Two-year yields were up more than 7 basis points on the day to 1.627 per cent as of 8:58 a.m. Toronto time.

What Bloomberg Economics says...

“The rebound from virus-related job losses was fast and furious in February, raising the risk of a faster pace of monetary-policy normalization this year than the 75 bps of further hikes in our current baseline.”

-- Andrew Husby, economist

Tight labor markets have persisted throughout the omicron wave, with unemployment rates remaining below pre-pandemic levels in provinces including Alberta and British Columbia, according to a March 10 report from RBC Economics. Canadian employment is now about 369,000 positions above pre-pandemic levels.

Full time employment was up 121,500 jobs in February, while part-time work rose by 215,100 positions. Gains in full-time work more than offset January losses, while part-time growth erased cumulative losses sustained over the previous two months.

The country shed about 200,000 jobs in January, ending a seven-month run of gains. Most of the losses were in pandemic-exposed sectors like accommodation and food services, and that industry recorded the biggest gain last month, with a 12.6 per cent increase.

Hours worked -- which is closely correlated to output -- rose 3.6 per cent in February, exceeding pre-COVID level for the first time and reaching a record high. The monthly increase in hours worked was also particularly pronounced in accommodation and food services, but still lagged February 2020 levels. 

On a year-over-year basis, average hourly wages increased 3.1 per cent. Alongside the upward trend in wage growth, there have been continued increases in the cost of living for Canadians. In January, inflation surpassed 5 per cent for the first time since 1991. February data are due next week.

“The labor market looks like it’s at or very close to full employment,” Royce Mendes, head of macro strategy at Desjardins Securities Inc., said in a report to investors. “As a result, the Bank of Canada will be able to confidently hike rates again next month.”