Volatility in global markets remains front and centre. Still, let us review the Labour Force Survey job report released this morning. Overall, Canadian labour market conditions remain strong even though the headline figures came in short of market expectations. Total employment fell by 88K in January (consensus: +10K), the first monthly decline registered since Brexit in mid-2016 and the largest one since the global financial crisis.
Part-time employment in the country fell by 137K, more-than-offsetting the gains made during the previous two months. It would be inappropriate to fully attribute this reduction to the minimum wage increase (from $11.60 to $14 an hour, representing more than half of the average salary). Part-time employment in Ontario plunged by 59K m/m (or -4.3% m/m) but companies did not reduced the number of hours worked. Thus, we cannot conclude that the steep minimum wage hike will gradually lead to a massive deterioration in labour market conditions. Instead, both in Ontario and the rest of Canada, some part-time workers are moving into full-time positions. For a fifth consecutive month nationwide, full-time employment rose strongly (+49K m/m). Furthermore, it increased by 414K from a year ago, the best showing since 2000.
There were other positive numbers in the report. In particular, the acceleration in wage inflation continued as the year-over-year pace of growth in average hourly earnings (AHE) rose from 2.7% to 3.3%, the strongest pace in two years. Excluding the impact of the minimum wage hike in Ontario, AHE still soared by 3.2% y/y. AHE were up by 3.4% or more in Alberta, B.C. and Quebec.
On a provincial note, the rebound of employment in Alberta continues in cyclical sectors, reflecting the global oil market consolidation. Full-time positions increased by 28K m/m and 88K y/y in Alberta. The level of full-time employment in this province will soon exceed the previous peak reached in 2015. In Quebec, total employment fell for the first time in four months (-17K m/m), but is still up by a robust 71K from a year ago. Quebec’s unemployment rate remained well below the 6% mark for a third consecutive month in January (5.4%) even though it edged up from the previous month (5.0%). Finally, in B.C., the unemployment rate remained below the 5% mark for a fifth consecutive month (4.8%) despite the pullback in January (-5K m/m).
Bottom Line: Labour market conditions are undeniably strong despite the rare pullback in total employment registered in January. The 0.1pp increase in Canada’s unemployment rate is painless. It stands near a four-decade low of 5.9%. With more companies citing labour shortages as a constraint on future production, the acceleration in wage growth could facilitate further removal of monetary stimulus by the Bank of Canada in 2018. However, there are other factors that could prevent the BoC to move away from the sidelines, including NAFTA uncertainty and the growing concern relative to Washington’s long-term fiscal sustainability. In this context of rising global interest rates, it is difficult for us to see how the BoC could hike its policy rate by more than 25bps again this year.
