No interest rate cuts =bad news for gold Canada's labour market blows past expectations, could keep BoC on hold longer
Canada’s labour market added a net 37,300 jobs in January and the unemployment rate fell slightly to 5.7 per cent, according to Statistics Canada, data that may support keeping the Bank of Canada on the sidelines for longer amid expectations for a rate cut.
The increase in jobs, which was more than economists expected, was due to a rise in part-time work. The number of full-time jobs fell by 11,600 in January, while part-time employment increased by 48,900. Economists had expected a gain of 15,000 jobs in January and for the unemployment rate to edge up to 5.9 per cent, according to Bloomberg.
The 0.1 percentage point drop in unemployment marks the first decline since December 2022. The federal data agency noted in a news release on Friday that the unemployment rate had been on an upward trend through 2023, rising from 5.1 per cent in April to 5.8 per cent in December.
"The employment data suggests that June is now more likely for the first Bank of Canada rate cut of this cycle than April," Desjardins managing director and head of macro strategy Royce Mendes said in a research note on Friday. However, Mendes noted that recent announcements of layoffs at companies across industries in Canada "still suggest that the economy is set for a bumpy ride as the past effects of high interest rates continue to weigh on activity."
"As a result, we're still looking for 125 basis points worth of rate cuts this year, just 25 basis points less than before."
CIBC economist Andrew Grantham also expects fewer rate cuts by the end of the year.
" Today's data suggest that the Bank won't be in a rush to cut interest rates, and we maintain our expectation for a first move in June," he wrote.
"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 25 basis point fewer cuts by the end of the year (finishing at 3.75 per cent rather than 3.50 per cent)."
Job gains were across several industries, including wholesale and retail trade (an increase of 31,000 jobs), and finance, insurance, real estate, rental and leasing (an increase of 28,000 jobs). The gains offset declines in other industries, led by accommodations and food services (down 30,000 jobs.) Employment in the public sector increased by 48,000 jobs.
Average hourly wages continued to rise, albeit it at a slightly slower pace, increasing 5.3 per cent year-over-year, compared to a 5.4 per cent year-over-year increase in December.
"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," BMO chief economist Douglas Porter wrote in a research note on Friday.
"The Bank of Canada is likely to view this report as further reason for a patient policy