Canada’s March jobs report came out hotter than expected, adding more pressure on the Bank of Canada’s fight against inflation. While we don’t see another rate hike in 2023 for now, there were not a lot of reasons from Thursday’s Statistics Canada report that suggest we will see rate cuts either. The market has been pricing in multiple rate cuts in 2023.
The Canadian economy added 34,700 net jobs in March—12,900 jobs more than in February—continuing to defy market forecasts for multiple months in a row.
Unemployment stayed at the all-time low of 5% for the fourth consecutive month as the labor force participation rate dropped 0.1 percentage point to 65.6%.
By now, it is unlikely that the economy will be in a recession in the first half of the year. The data confirms our forecast of a recession likely taking place later in the summer or the second half of the year.
The strong jobs report kept wage growth elevated overall, though it did inch down slightly to 5.2% from 5.4% a year ago. That was too high if compared to the current policy interest rate at 4.5%.
There will be pressure on the BOC to remain on course to bring inflation down to the target of 2%. Given the current strength of the economy, we don’t expect inflation to come down to 2% anytime soon.
The BOC will meet next week, a couple of days before March’s consumer price index inflation report comes out. We expect no surprise rate hike next week, yet the central bankers will likely acknowledge the economy’s strength and signal a potential change in policy if inflation continues to stay hot.
Inside the data
The goods sector posted a drop in job gains for the first time since November, down by 40,900 jobs on the month, while the service sector remained robust, adding 75,500 net jobs.
All categories within the goods sector showed declines in net job gains, led by construction (down 18,000) and forestry, fishing, mining, gas, and oil (down 10,600).
Service sector gains were driven by business services, which added 30,500 net jobs.