Canada Employment Preview: Forecasts from five major banks, labour market continues to loosen

We look for employment to rise by 30K in January, slightly above the recent trend, although this will not be enough to keep the UE rate from rising 0.1pp to 5.9%. This reflects a recent pickup in hiring intentions while stronger growth momentum into year-end will also provide a tailwind to job growth, although we see limited scope for softer wage growth (0.1pp to 5.6%).

Job creation may have remained tepid in January (+10K), reflecting an economy operating below its potential. This modest gain, combined with another significant expansion of the labour force and an unchanged participation rate (65.5%), should translate into a two-tenth increase in the unemployment rate, to 6.0%.

We expect Canada’s unemployment rate likely hit 5.9% in January – up almost a full percentage point from 5% a year earlier. That’s the highest rate since the pandemic – January 2022. We expect to see another 10K jobs added from December, but that’s not fast enough to keep up with the country’s record pace of population growth.

After essentially zero job growth in December, we expect employment to rise by a solid 40K jobs to start the year in January. This would be stronger than the trend over the last few months and stronger than a typical pre-pandemic pace around ~25K/month. But with substantially stronger population growth and an expectation that the labor force participation rate will rebound to 65.6% after falling in December, a 40K increase in employment would still imply the unemployment rate rises to 5.9%. Wages will be one of the most important factors to watch. After a large jump to 5.7% YoY in December, we expect average hourly wages to fall to 5.3% YoY in January.

Canada’s labour market likely weakened in January, with a modest 10K gain in jobs leading the unemployment rate to tick up to 5.9%. That would reflect a deterioration in domestic demand, with consumers becoming more cautious with spending as mortgages renew, and the rise in business insolvencies portending layoffs in some sectors. Hours worked could have picked up, but that will likely be a one-time impact owing to the end of public sector strikes in Quebec. With a strong year-ago monthly wage growth figure falling out of the annual calculation, wage growth for permanent employees could have subsided by a few ticks, but that would still leave it above 5.0% YoY.