Labour market storms back to growth in February

• In February the Canadian economy added 337,000 jobs, offsetting the losses in January by a wide margin. The labour force participation rate rose to 65.4 per cent and the unemployment rate dropped to 5.5 per cent, below the 5.7 per cent rate recorded before the pandemic.
• The easing of restrictions, introduced to combat the Omicron variant, underpinned the expansion in employment this month. Accordingly, job growth was spearheaded by the high-contact services sectors. Employment in the accommodation and food services industry rose by 114,000. There were also increases in retail trade (+21,000) and the information culture and recreation (+73,000) industry. Among the goods-producing industries, construction accounted for most of the job growth as employment rose by 37,000.
• Job growth was concentrated in Ontario and Quebec, which together accounted for over 80 per cent of the employment growth. Employment also rose in all other provinces, except New Brunswick, where there was little change.
• Total hours worked grew by 3.6 per cent on the month to reach a record high. On a year-over-year basis, wages grew by 3.1 per cent in February.

Key insights:

• Most of the remaining restrictions in Canada will lift in the coming weeks, so we expect these employment gains to be solidly anchored. For the labour market, a reduced reliance on restrictions means less volatility, which should allow lagging industries to make a full recovery. As we move beyond a cycle of lockdown and reopening, the enduring impressions of the pandemic on the labour market will begin to emerge. The pandemic has permanently altered the occupational landscape and created lasting changes such as the practise of telework.
• In February, the Canadian Government announced its Immigration Levels Plan 2022-2024. Broadly speaking, the government is increasing the target for new permanent residents over the next three years. The increased targets are a recognition of the labour shortages plaguing many sectors of the Canadian economy. Over the course of the pandemic, job vacancies in Canada have surged. Amid pandemic disruption to international mobility, the government has increasingly relied on converting the status of temporary residents located in Canada to permanent residents. While status conversion will remain an important channel for immigration, many temporary workers are already in employment. Given the pressing need to address labour scarcity, it is important that the government works to increase immigrant landings from outside Canada.
• Tight labour market conditions and rising consumer prices are associated with higher wage growth. Despite a pick-up in February, wage growth in recent months has been unremarkable. The wave of resignations and job-switching that has played out in the US, dubbed the ‘Great Resignation’, has not occurred in Canada and is likely part of the wage story. Firms will do whatever they can to retain skilled workers including increasing compensation. But if workers stay put, the incentive to improve compensation is lower. As the pandemic disruption subsides, we may now see the job-switching rate among Canadian workers rise. If so, employers will soon have to increase wages to keep a hold of their staff.