Employment in Canada posted modest growth in February, following months of strong job creation, and this momentum has some observers worried about further interest rate hikes.
In its Labor Force Survey released on Friday, Statistics Canada said the economy added 22,000 jobs in February, buoyed by an increase in private sector employment.
The federal agency added that the country’s unemployment rate had held steady at 5%, remaining near record highs.
More modest employment growth
Most of the job gains were in health care and social assistance, public administration and utilities. Meanwhile, jobs have been lost in business services, building services and other support services.
In January, the economy welcomed 150,000 new workers, significantly exceeding expectations.
Although labor market conditions remain fairly good – with unemployment just above its all-time low of 4.9% – the latest Statistics Canada report showed a return to more modest employment growth. .
Still, continued strength in the labor market is making many economists nervous about the possibility of further rate hikes.
And inflation?
Although February’s job gains were lower than in previous months, TD Bank’s director of economics James Orlando said they were still “too high.”
“It’s concerning because it translates into higher wages, which can lead to higher inflation, and it could derail the Bank of Canada’s efforts to reduce inflation,” Mr. Orlando.
Unemployment is expected to rise in the coming months as high interest rates slow spending, which slows the economy.
Signs of this slowdown are already apparent. In the fourth quarter, the Canadian economy was flat, posting 0% growth.
But Mr. Orlando warns that one shouldn’t just focus on the overall growth rate. In the shadow of this figure lies a slight increase in consumer spending, which suggests that high interest rates are not hurting consumers so much.
The economist is not only concerned that interest rates take a long time to affect the economy.
“There seems to be a resurgence of some of this data, particularly in the labor market and among the Canadian consumer,” he explained. The Bank of Canada needs to see a turning point in the economy. We can’t keep getting job growth. »
Wages and productivity under the magnifying glass
While affordability is a priority for many Canadians, the latest jobs report shows that the gap between wage growth and inflation is narrowing. The average hourly wage rose 5.4% in February compared to the same month last year, while annual inflation was 5.9% in January.
The Bank of Canada, which is working to reduce the country’s high inflation, has expressed concern that sustained wage growth of 4% to 5% will make it more difficult to return to its inflation target of 2%. .
In a speech on Thursday, the central bank’s senior deputy governor, Carolyn Rogers, reiterated that point, noting that labor productivity would have to rise to keep wage growth from fueling inflation.
“Last week’s data shows that labor productivity in Canada fell for a third straight quarter. So it’s not going in the right direction yet,” Rogers said.
Labor productivity refers to the amount of output a worker produces. But increased labor productivity doesn’t mean people work harder, said University of Waterloo economics professor Mikal Skuterud. Rather, it is about the possibility of equipping them with the technology and skills that would allow them to work better.
“The difficulty for the bank is trying to figure out how much of wage growth is truly productivity-related and how much is just some kind of wage inflation,” he explained.
The Bank of Canada’s concerns about a tight labor market have been met with rebuke from unions, who believe the central bank is working against workers’ interests.
Mikal Skuterud pointed out that there was “a very good reason” for the Bank of Canada to prioritize reducing inflation. But his policies also have welfare implications, he continued.
And as workers continue to see wages lag behind inflation, Skuterud said workers are losing out. “There is every reason to be upset. Without a doubt. »
The effect of interest rate increases on the labor market should be felt in the coming months, as the Bank of Canada this week kept its key rate at 4.5%, its highest level since 2007.
Although high interest rates have already taken their toll, their full effect is yet to come, as economists estimate that it can take up to two years for rate hikes to be digested by the economy.
Stable jobs in Quebec
On the provincial side, Statistics Canada observed that employment remained stable in Quebec last month. Some 15,500 jobs have disappeared there and the unemployment rate has climbed by 0.2 percentage points, to 4.1%.
The agency said the unemployment rate in the Quebec metropolitan area was 1.9%, the lowest rate of any census metropolitan area in Canada.
In New Brunswick, employment increased by 1.3%, or 5,100 jobs, and the unemployment rate fell by 1.2 percentage points to 6.3%. In Prince Edward Island, employment rose 2.0%, or 1,700 jobs, and the unemployment rate was 7.3%.
Nova Scotia was the only province to post a drop in employment in February, down 4,700 jobs, or 0.9%. Its unemployment rate rose 0.7 percentage points to 5.7%.