Massive Canada jobs gain boosts likelihood of another rate hike

Canada added 104,000 jobs in December, blowing past estimates.

Workers on the floor of Alfield Industries, a subsidiary of Martinrea, one of three global auto parts makers in Canada, in Vaughan, Ontario, Canada April 28, 2017. Picture taken April 28, 2017. REUTERS/Fred Thornhill
Canada's jobs market ended 2022 with a bang as employers added 104,000 positions, crushing economist expectations. REUTERS/Fred Thornhill

The Canadian labour market added a whopping 104,000 jobs in December, Statistics Canada reported Friday, shrugging off the impact of higher interest rates and an uncertain economic outlook.

The consensus among economists surveyed by Bloomberg was for a mere 5,000 jobs gain.

The labour force survey is often noted as being an extremely volatile data series.

“The random number generator was [at] it again in Canada,” Royce Mendes, managing director and head of macro strategy at Desjardins, said in a note to clients.

He added the report is “hardly as strong as the headline jobs reading would suggest,” as total hours worked flatlined.

“So, despite the apparent hiring spree, the economy didn’t seem to be producing much more goods and services. Our tracking for Q4 GDP will likely remain around 1.5%.”

The unemployment rate ticked lower to 5.0 per cent in the month, nearing the record low of 4.9 per cent seen this past summer.

BMO Capital Markets Chief Economist Doug Porter took a rosier view.

“While it's always dangerous to read too much into a single Canadian jobs report, it's safe to conclude that the economy still had some serious zip at the end of last year. True, the labour market is typically the last to turn when conditions soften broadly, but there is precisely zero hint of any such softening in the jobs data,” Porter wrote in a note.

The employment increase was driven by full-time work. The gains were widespread across many sectors but the construction, transportation and warehousing, and information, culture and recreation industries saw the biggest gains.

The health care and social assistance sectors, where the labour shortage has been particularly acute, saw a decrease in jobs in December.

In a new data point tracked by Statistics Canada, the agency said 250,000 Canadians had provided ride or delivery services through an app or digital platform in 2022.

Meanwhile, growth in average hourly wages decelerated, but remained strong by historical standards at 5.1 per cent in December, marking the seventh month in a row where wages remained above five per cent.

Canadian businesses have grappled with labour shortages that have eased only slightly from record high job vacancies seen in the summer.

Tilting the odds of a quarter-point hike

This is the last labour force survey before the Bank of Canada’s next interest rate decision later this month. Leading up to the report, Bay Street economists had been split on whether the central bank would hold on rates or hike a further 25 basis points. Many of them now say a quarter-point increase is more likely.

“The surge in hiring is probably enough to tilt the odds in favour of a final 25bp rate hike from the Bank of Canada later this month,” Mendes said.

CIBC had also been expecting a pause from the Bank of Canada.

“​​The strong headline readings raises the probability of another 25bp hike at the January meeting, and is a clear risk to our forecast for a hold. However, the next CPI report and the BoC's own business and consumer surveys, released in two weeks' time, will also be important in making that final decision,” Andrew Grantham, a senior economist at CIBC Capital Markets, said.

The central bank hiked its benchmark rate by a cumulative 400 basis points to 4.25 per cent over the course of 2022.

Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.

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