The record squeeze on Canadian labour markets is unlikely to have loosened much in January. We look for a small increase in employment (roughly 5000 workers) to add to the 176,000 surge in positions that played out over the prior four months. We also expect a tick up in the unemployment rate, to 5.1%—still just off multi-decade lows earlier in the summer.
Still, there are early signs that cracks may be forming in the market. The excess of job postings relative to available labour supply has begun to edge lower. Just under 5% of available jobs were vacant as of November, down from a peak of nearly 6% earlier last year. Hours worked actually decreased in December despite strong job growth (and when demand starts to soften, businesses typically cut hours worked first, before moving to layoffs). The closely-watched Bank of Canada Business Outlook Survey showed business plans to add staff have been falling alongside a decline in expected wage growth.
The strongest headwind for labour markets is expected to stem from the 425 basis points of BoC interest rate hikes over the last year. These continue to ripple through the economy, making a particular impact on household borrowing costs. At its January meeting, the BoC said it intends to pause its current hiking cycle, and labour markets have proven substantially more resilient than expected in recent months. But higher borrowing costs—in conjunction with still elevated inflation—will erode consumer spending as debt servicing costs eat up a rising share of household purchasing power. We continue to expect those pressures to weigh on GDP and push unemployment higher this year .
Week ahead data watch
We expect the Canadian trade balance to be in deficit in December. Given that Canada is a large energy exporter, the reduction in oil prices in December (-9.2%) would result in a lower trade balance in the energy sector. A weaker Canadian dollar likely increased the price of both exports and imports.
Minutes from the Bank of Canada deliberations ahead of the January 25th policy decision will be released for the first time. The minutes will be watched for any additional details on what led the BoC to announce an expected pause in interest rate hikes after what may have been the last increase of this cycle at that meeting.