Fundamental Analysis

Canadian Job Growth Enters the Stratosphere, with Wages Starting to Follow

Typography

Highlights:

  • Employment rose 80k in October, the 12th consecutive monthly increase and the best gain in more than five years.
  • The unemployment rate plummeted to 5.9%, one of only a handful of sub-6% readings in the last 40 years. The decline was all employment driven—labour force participation was unchanged in November.
  • Wages have accelerated sharply in recent months, with a bit of help from higher minimum wages in several provinces. Wage growth picked up to 2.7% year-over-year from as low as 0.5% in April.
  • Job growth was widespread but led by Ontario, Quebec and British Columbia. Unemployment rates declined substantially in the former two provinces and Quebec's rate is now the lowest on record.

Our Take:

Where do we start? Canada's longest hiring streak in a decade continued with a whopping 80 thousand jobs added in November. Average employment growth of 32.5 thousand per month over the last year is the fastest pace since 2007. The unemployment rate fell 0.4 ppts in November, the largest monthly decline since 2005. And that was without a dip in the labour force. The rate, now at 5.9%, was only lower for a single month prior to the last recession—a time when the economy was operating beyond its longer run capacity limits. The only fly in the ointment was a sizeable drop in average hours worked that retraced much of the increase seen in recent months. The Bank of Canada has flagged below-trend hours worked as a sign of labour market slack, but other indicators are clearly pointing to very tight conditions.

For all the impressive numbers just listed, perhaps our favourite in today's report is wage growth. Average hourly wages for permanent employees were up 2.7% from a year ago in November, the best pace in a year and a half. Much of that increase has come in the last few months as wage growth accelerated sharply—finally a bit of evidence that tight labour market conditions are feeding through to wages. If that trend holds up it will be hard for the Bank of Canada to remain on the sidelines much longer. Our forecast assumes the bank will raise rates again in April when they have more information on Nafta renegotiation and how households are handling this year's rate hikes. If anything, today's blockbuster employment report raises the risk of an earlier move.

Author: RBC Financial GroupWebsite: http://www.rbc.com/
RBC Financial Group
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.
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