E Canadian Wage Inflation Escalated Sharply In January

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Canada’s employment statistics are based on a survey of households which is notoriously volatile on a monthly basis. 

Thus, when Canada appeared to lose a massive 54,000 jobs last November, it is not too surprising that over the following two months employment expanded relatively strongly.

Indeed, this was the case as in December and January Canadian employment increased by a total of 64,000 jobs. Additionally, over the last two months virtually all new jobs created were full time jobs.Nonetheless, over the last three months, average monthly job creation was barely above zero. 

Even so, Canada’s labour force survey indicates that 2020 began on a strong note since in January the economy created close to 35,000 jobs and the unemployment rate slipped lower to 5.5%. 

The recent improvement in the labour market is also consistent with a Bank of Canada business survey which identified an increase in firms’ hiring intentions.

Other signs of strength this year include an increase in Canada’s labour force participation rate to 65.4% and increase in money wages at a 4.4% year-on-year pace, significantly faster than the 3.8% pace in the previous month.

With respect to specific sectors, manufacturing and construction employment expanded strongly in January, 21,000 and 16,000 respectively, while service sector employment declined by 15,000. 

Quebec (+19,000), Ontario (+16,000), and British Columbia (+3,000) posted job increases in January, while Alberta reported losing 19,000 jobs.

The latest relatively strong job market statistics will reinforce the Bank of Canada’s attitude to stand pat on interest rates for a while, even though most of the evidence convincingly points to a slow 1.6% growth projection.  

This writer worries a bit that the strong wage gains in January could be mislead the BoC that higher inflation is close by.  

Indeed, the labour market is quite strong in Canada’s three largest provinces, Ontario, Quebec and BC, but it would be a significant error to raise interest rates in an environment where inflation seems to be declining on a secular basis. 

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