Today’s employment report for January, in which the unemployment rate ticked down, has caused bond markets and economists to further reel-in their rate-cut forecasts for the year.
Despite a dip in the country’s unemployment rate in January, today’s jobs report from Statistics Canada paints a more complicated and mixed picture, economists say.
Even so, bond markets have lowered the odds of a Bank of Canada rate cut in March to just 16%. June remains the most probable timing for the first quarter-point rate cut with 90% odds. Prior to today, markets were pricing in 90% odds of a 50 bps reduction.
On net, 37,300 jobs were created last month, consisting of a gain of 48,900 part-time positions and a loss of 11,600 full-time jobs.
StatCan also reported that the country’s unemployment rate ticked down 0.1 percentage point to 5.7%, marking the first decline since December 2022.
But while these figures suggest strength in Canada’s labour market, experts say the underlying details actually point to weakness.
“When you drop out of the workforce and stop looking for a job, you’re not counted in the unemployment rate. You’ve given up. Are more Canadians giving up looking?” Bruno Valko, Vice President of National Sales at RMG, pointed out in a recent note to subscribers.
“Factor in immigration and population growth and the job numbers released today are terrible,” he added.
TD economist James Orlando added that the participation rate fell due to a 126,000 rise in population in January, but only a net addition to the labour market of 18,000. This, he said, is “not a typical sign of a strong labour market.”
The report also pointed to weakness in goods-producing sectors, with all five sectors down in January.
Wage growth for permanent employees also slowed to an annualized 5.3% from 5.7%, in line with expectations.
One more reason for the Bank of Canada to remain on hold
January’s mixed-bag employment report follows stronger-than-expected GDP growth in November, adding one more reason for the Bank of Canada to take its time in initiating its first rate cut.
“The Bank of Canada is likely to view this report as further reason for a patient policy stance,” wrote BMO chief economist Douglas Porter, adding that the key takeaway is that there are still “no obvious signs of stress for the economy.”
“A decent job gain, a slide in the jobless rate, and persistent 5% wage growth are hardly the stuff of an urgent call for rate cuts,” he said.
Today’s results caused CIBC to reel in its rate-cut forecast for 2024, and now expects 125 bps worth of rate cuts by the end of the year as opposed to 150 bps previously.
“Today’s data confirm that the Bank won’t be in a rush to cut interest rates, and we maintain our expectation for a first move in June,” wrote CIBC economist Andrew Grantham. “Given indications from today’s data and previously released GDP figures that the Canadian economy is in somewhat better shape than previously expected, we now forecast 25bp fewer cuts by the end of the year.”