Canadian Labor Market Surpasses Analysts’ Expectations with Supersized Gains
In March of 2023, the Canadian job market witnessed a surge of 34,700 jobs, outpacing the predictions of analysts. In the previous seven months, the job market has expanded continuously, adding 382,000 jobs since September of 2022, with a whopping 150,000 jobs added in January and 69,000 jobs added in December. This growth has contributed to the steady unemployment rate of 5% for four consecutive months, hovering only slightly above the historical low of 4.9% recorded in June and July of 2022.
Views from Economists
The employment report has garnered a wide range of views from economists, each offering their own perspectives on the state of the labor market. James Orlando of TD Economics believes that workers are putting in more hours and experiencing wage increases. The report supports TD Economics’ prediction that Canadian GDP will reach approximately 2% in the first quarter of 2023. However, the report may not be enough to stir the Bank of Canada into action, as the continued expansion of the job market could be a cause for concern.
On the other hand, Douglas Porter of BMO Economics agrees that the report will not compel the Bank of Canada to act. The combination of robust job growth, a tight jobless rate, and a wage growth of over 5% may still be too hot for the bank’s comfort. Porter suggests that a slowdown in growth and the labor market will be necessary to create excess capacity in the economy, which may lead to job losses and an increase in unemployment rates.
Tony Stillo of Oxford Economics contends that although March’s employment rate was slightly higher than expected, a recession is still imminent, and job losses may be in the cards. He adds that the bank will maintain a hawkish bias despite recent financial turmoil.
Charles St-Arnaud of Alberta Central, however, believes that the Canadian economy remains robust and resilient. The low unemployment rate signals that the labor market is tight, and wage growth remains above 5%. Despite this, a robust labor market and strong wage growth present challenges for the Bank of Canada. To combat inflation, the bank must slow down growth and create excess capacity in the economy, which may lead to job losses and a rise in unemployment rates.
Finally, Nathan Janzen of RBC Economics notes that although the labor market remains strong, aggressive central bank interest rate hikes over the previous year may pose headwinds. He predicts that the Bank of Canada will hold the overnight rate at 4.5% at next week’s policy decision and keep it there for the remainder of the year.
Conclusion
Overall, economists agree that the Canadian job market continues to surpass expectations with its strength and resilience. However, there are concerns that the market may be overheating, leading to inflation and other economic risks. The Bank of Canada is expected to maintain a hawkish bias, focusing on fighting inflation and ensuring financial stability. While the job market is a lagging economic indicator, economists will continue to scrutinize the data for any signs of change or potential risks.
