Labour Market Delivers Another Big Employment Rise in January

Canadian Economics

By: Liam Daly

  • Employment rose by an impressive 150,000 in January, building on the large gains in December. The labour force participation rate rose to 65.7 per cent. Meanwhile, the unemployment rate held steady at 5.0 per cent, just 0.1 per centage points off the record low.
  • The goods-producing industries saw broad-based gains, with the largest increases in construction and manufacturing. The only decline within this grouping was in agriculture. Across the service sector, employment growth was driven by gains in wholesale and retail trade. Employment also rose among client-facing and public services. One of the few declines of note was in transportation and warehousing, undoing the employment gains of the previous month. This industry continues to struggle to register consistent job growth.
  • Across Canada, employment rose in six of ten provinces. Gains were recorded in Ontario (+62,800), Quebec (+47,400), Alberta (+20,700), Nova Scotia (+9,400), British Columbia (+7,700) and Saskatchewan (4,500). Newfoundland and Labrador (-2,300) was the only province to record a decline. Employment remained largely unchanged In New Brunswick, Manitoba and Prince Edward Island.  
  • Wage growth continued to decelerate. Average hourly wages grew by 4.5 per cent on a year-over-year basis, down from 4.8 per cent in the previous month.  With inflation cooling and immigration adding to labour supply, some of the pressure underpinning strong wage gains in recent months appears to be easing.

Key Insights

Despite fears of a labour market downturn, the Canadian economy has bucked expectations with a net gain of almost 250,000 jobs over the last three months. Higher interest rates aimed at tackling inflation work by lowering demand, and historically, this tends to lead to layoffs. Notwithstanding well-publicised cuts in the tech sector, more broadly, layoffs in Canada have remained low. Several factors are contributing to the surprising strength of the job market. The federal government is pursuing an immigration target of almost half a million permanent residents this year. Strong immigration coupled with elevated job vacancy rates are helping to bolster employment. Meanwhile, robust wage gains in recent months have helped to support household incomes and consumer spending, particularly on services. This safeguards the demand for workers across sectors, including retail and hospitality.  

Following the latest interest rise, the Bank of Canada has signalled its strategy of monetary tightening is ‘on pause’ while the impacts of monetary tightening are assessed. Indicators suggest that inflationary pressure in the economy is easing. Alongside cooling price growth, wage growth, although still elevated, has fallen for the second consecutive month. There are signs that the mismatch between labour demand and supply may also be easing. Data collected by Vicinity Jobs show job postings in Canada are trending down. So, what does all this mean for the economy? Historically, falling inflation is associated with rising unemployment, yet Canada’s jobless rate remains within touching distance of the record low of 4.9 per cent registered last summer. The labour market’s resilience in the face of falling inflation bodes well for the economy, and the prospect of achieving the fabled soft-landing looks increasingly feasible.

Meanwhile, the 2021 Canadian census results provide a wide-angled portrait of the labour market. The census reveals the gradual evolution of Canada’s employment composition driven by technological change, demographic trends and social factors. Since the turn of the century, Canada has experienced strong employment growth in construction, healthcare and social assistance and professional scientific and technical services. Canada’s ageing population will continue to drive up demand for healthcare workers, while high immigration will increase the need for housing and other infrastructure, supporting demand for construction workers. Meanwhile, rising education levels and the expansion of tech hubs across Canada will continue to feed employment growth among high-skilled services, while technological change, including increased automation, is contributing to employment declines in sectors such as manufacturing and agriculture.

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