This morning’s release of the Labour Force Survey employment report surpassed market expectations once more. Let us start with general observations showing the significant improvement in labour market conditions:
- Total employment soared by 79,000 in December and 80,000 in November, the third best two-month performance since data became available in the 1970s.
- Total employment soared by 423,000 during the last 12 months, the best performance since 2003.
- The employment rate of 62% stands at its highest level in the current business cycle.
- The participation rate has been flat during the last 12 months. Thus, Canada’s unemployment rate fell at its fastest pace since 2000, reaching a four-decade low of 5.7% in December.
Given the global growth momentum, job gains are registered across several cyclical industries. The manufacturing sector is particularly roaring back, registering its strongest 12-month job gain since the early 2000s decade (+86K). Compared with a year ago, job creation stayed above trend in households and business-related sectors such as wholesale/retail trade (+79K), construction (+51K), transportation (+53K) and finance/insurance (+53K).
Regionally, Quebec’s labour market performance is astonishing. Total employment rose strongly for a third consecutive month in December (+27K), led by full-time positions in the services sectors. The province’s unemployment rate dropped like a stone, from 6.1% in October to a new record low of 4.9% in December (see chart). Quebec’s employment rate stands at a record-high 61.6%, up substantially from a year ago.
The momentum is also encouraging in Western Canada. In British Columbia, the only province with an unemployment rate lower (than Quebec’s at 4.6%), employment increased for a second consecutive month in December (+6K). With WTI crude oil prices rising above US$60 per barrel, it is not surprising to see Alberta’s unemployment rate falling below the 7% mark (6.9% in December) for the first time in two years (see chart). Employment in Alberta soared by 26,000 in December, the strongest month-to-month gain in five years. As we saw during most of 2017, employment generally rebounded in industries were layoffs occurred during the 2014-15 oil price shock, namely natural resources, manufacturing, transportation and real estate.
Finally, job creation took a breather in Ontario during the month of December (+2K) and the unemployment rate remained at a 18-year low of 5.5%. Employment in the 15-24 age group fell by 10,000 after increasing more-than-usual during the previous five months. Thus, this decline appears to be a normal setback, rather than reflecting a general move by companies to cut staff ahead of minimum-wage increase (from $11.60 to $14 per hour in January 2018).
Bottom Line: This Labour Force Survey report clearly points to a tighter labour market. The pace of growth in average hourly earnings (AHE) remained robust for a second consecutive month, at 2.7% year-over-year, increasing the case for a Bank of Canada policy hike in the early stages of 2018. This being said, two months do not make a trend. Since this measure of wage inflation tends to be volatile (see chart), a more sustainable increase will be required to facilitate further removal of monetary stimulus by the BoC. Thus, a 25bps policy rate hike on Jan. 17th is not a done deal. For the Jan. 17th decision, BoC officials will also take into consideration the new edition of the Business Outlook Survey to be released on Monday.
Finally, in addition to NAFTA uncertainty, another reason for leaning in favour of a March hike is that the Trump administration in the United States may engage in restrictive trade measures against China by the end of the month. Altogether, we maintain our current call of a 25bps policy rate hike at the March 7th meeting, acknowledging the risk of seeing the BoC hiking more than once during the entire year.
