Job market held strong in April, providing little relief to Bank of Canada
Average wage growth remained above 5% for yet another month
Canadian employers created more jobs in April, continuing to resist pressure from higher interest rates.
41,000 jobs were added in the month, Statistics Canada reported on Friday, more than double the 20,000 gain predicted by economists surveyed by Bloomberg. While full-time work held steady, the increase came from part-time work and was the first notable rise in part-time jobs since last October, the agency said.
The wholesale and retail trade, transportation and warehousing, and information, culture and recreation sectors saw the biggest gains.
The unemployment rate was 5.0 per cent, now unchanged since December. Average wage growth also held strong at 5.2 per cent from a year earlier.
“Even though today's increase in employment was fairly narrowly based and driven by part-time work, the labour market is clearly stronger and tighter than we would have expected given signs of deceleration in economic growth to end Q1, which supports the continued hawkish tone from the Bank of Canada,” Andrew Grantham, senior economist at CIBC Capital Markets, wrote in a note to clients.
The labour market, and wage growth in particular, have been a sticking point in Bank of Canada’s aggressive interest rate hiking campaign to bring inflation back down to its two per cent target.
Since last June, wage growth has remained above five per cent in all but one month.
Heightened risk of further rate hikes
BMO Capital Markets chief economist Doug Porter says job strength, combined with a housing rebound, could pave the way for more rate hikes.
"If this persists through the spring, the Bank of Canada may yet be forced to rethink its rate pause, especially with the housing market showing signs of reviving. All eyes will now turn to the next inflation report (CPI, May 16), which needs to continue slowing to keep the Bank on the sidelines," he said in a note on Friday.
Speaking at an event on Thursday, Bank of Canada governor Tiff Macklem warned he’s “prepared to raise rates further” if inflation gets stuck significantly above two per cent, and partly blamed strong wage growth for its role in underpinning inflation.
“Most wage growth measures remain around the 4% to 5% range. Unless productivity growth surprises us with a strong increase, persistent wage growth in that range will make it difficult to achieve the 2% inflation target,” Macklem said on Thursday.
Meanwhile, Karl Schamotta, chief market strategist at foreign exchange firm Corpay says the implications of the latest jobs data for interest rates are “unambiguous.”
“The Bank of Canada is likely to remain on hold, with still-elevated underlying inflation pressures and relatively-robust economic activity levels adding to strong employment growth in supporting the case for keeping policy restrictive, even as sentiment and credit creation measures point to an imminent slowdown,” he said in a note to clients.
“This should narrow the gap between US and Canadian yields on the front end, and help push the Canadian dollar decisively through the 1.35 mark against the greenback - even as weaker oil prices add drag.”
Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.
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