• Labour market report stronger than expected with the string of strong gains continuing; unemployment rate edged down to 6.8%

Today’s labour market report showed the economy generated another 48,000 jobs in January defying expectations for a correction after job gains surged by 46K in December and averaged 30K per month through the fourth quarter. January’s rise and the dip in the unemployment rate are line with an economy that is running slightly faster than its potential.

Job creation was skewed to part-time positions however full-time employment also rose in January. Given the split, this will keep alive concerns that Canada’s economy is not generating the "right" types of jobs. The majority of jobs created over the past year were part-time and although this sounds alarming it isn’t because the data show that the most of those who took a part-time position did so because that’s what they wanted. Another source of concern is that the new jobs created were disproportionately in the services sector. This was evident in the January report as well however we don’t see this as a bad thing. In fact in 2016, 44% of the service sectors jobs created were ones that paid an above–average wage. The anomaly in the report is the persistent slowing in wage growth which clocked in at 1.0% in January

Implications:

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Today’s report suggests the economy entered 2017 on a firm note with the trend rate of employment growth sufficient to maintain household spending at a rate similar to 2016. To be sure, there is scope for labour market conditions to weaken if the US Administration decides to implement trade policies that crimp export activity resulting in Canadian companies hunkering down or, worse, cutting jobs as they assess the damage. Assuming no draconian measures are in the pipeline, higher energy prices and a larger lift from fiscal stimulus should be enough to support the economy growing at an above-average pace in 2017. Like RBC, the Bank of Canada’s forecast assumes that no adverse policy changes are ahead and forecast the economy will grow at a quicker clip this year. However the risk that the Trump Administration will announce changes to their trade policies cannot be discounted and until it is clear that there won’t be any negative fall-out for Canada, the Bank will likely stay on the sidelines.

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