Strong December stats aside, there could be further challenging times to come
Canada’s labour market ended 2024 with a bang, adding 91,000 jobs in December to nudge the employment rate up to 60.2% and the unemployment rate down to 6.7%.
The latest information from Statistics Canada gave big bank economists plenty to think about with headline stats perhaps at odds with underlying trends – making it harder to second guess the Bank of Canada as it nears its January interest rate decision.
December’s data shows that educational services (+17K jobs), finance, insurance, real estate, rental and leasing (+16K), and health care and social assistance (+16K) were the industries driving the increase in jobs, with core-aged men, and men and women over 55 the net beneficiaries. Full-time jobs were dominant.
Canadians were working more with average hours up 0.5% in the month and 2.1% compared to 12 months earlier, while there was more than a dollar extra per hour earned with the average hourly rate up to $35.77, a rise of almost 4% year-over-year.
Considering the figures, economists have been weighing up what they believe the BoC will do with rates on January 29, when it will also publish its first Monetary Policy Report of 2025.
RBC’s Nathan Janzen acknowledges the better-than-expected December stats but notes that labour market data is notoriously volatile and that the unemployment rate is still elevated from a year earlier. The economics team believes that unemployment has not peaked with the three-month average rate still rising in December). While Janzen says the BoC will likely need to cut rates to a more stimulative level, he gave no firm call for a January cut.
CIBC’s Andrew Grantham also highlights the underlying story in unemployment. He points to the demographics of those unemployed which was mostly young people and newcomers to Canada a year ago but was broader in December having risen relative to post-pandemic lows. The bank’s economics team still continue to forecast a 25 basis point reduction at the January meeting and a 2.25% trough for the overnight rate later this year. Factors including the threat of US tariffs inform this call.
At TD, James Orlando says that a January cut is called into question by the strong labour report, with the BoC perhaps requiring the extra information that will be available on how the Trump administration may impact the Canadian economy and whether this will require rate cuts.
National Bank’s Matthieu Arseneau and Kyle Dahms also hold back from a definite call for a rate cut this month. With the potential for tariffs to lead to further unemployment and other underlying economic uncertainties, they go no further than expecting that “that the Bank of Canada will have to cut its policy rate to the lower end of its neutral range (between 2.25% and 3.25%) by the summer.”
