MNI: Analysts See No 'Dramatic' Wage Pick Up In 2018 in Canada

By Yali N'Diaye

     OTTAWA (MNI)    - Despite a still above-potential growth rate and a

decreasing labor market slack, analysts don't expect wages to spike in 2018,

comments from those analysts show.

     Canada's unemployment rate stands at 5.9%, its lowest level since February

2008.

     Between January and November 2016, the monthly average employment gain was

half as much, 16,600, including only 200 for full-time jobs, making 2016 one of

the slowest years for full-time employment.

     Yet, "wages are likely poised for a gentle acceleration ahead, but nothing

too dramatic since we aren't well-through full employment," CIBC economist Nick

Exarhos told MNI.

     --TIMID BOC ACKNOWLEDGEMENT

     The Bank of Canada so far has acknowledged the labor market progress, but

without much enthusiasm.

     In its December 6 policy statement, the central bank stressed the remaining

slack in the labor market, although it is "diminishing." And on the wage front,

a key data it is continuing to watch closely, it only conceded "some

improvement."

     Nonetheless, in a subsequent speech on December 14, Governor Stephen Poloz

said that with the economy in a "sweet spot" where companies are running "flat

out", firms are moving to increase capacity, another key indicator high on the

BOC's radar screen.

     Still, it will overall take a while before recent "encouraging" signs of

improvements become trends, Poloz warned in defending the BOC's cautious

approach.

     --BEYOND MINIUM WAGE HIKES

     Wages will get a boost from planned minimum wage hikes in 2018,

particularly in Ontario, and the central bank might, at least partly, look

through this impact as it is assessing the labor market slack and its effect on

wage growth.

     But outside of these hikes, analysts are not expecting wages to surge.

     "We do expect to see in Canada a pick-up in wage next year and we already

see some signs of an acceleration," Desjardins Senior Economist Mathieu D'Anjou

told MNI.

     Average hourly wage growth for permanent workers rose 2.7% year-over-year,

the largest gain since April 2016, according to Statistics Canada's November

Labor Force Survey.

     At PNC Financial Services Group, Senior International Economist Bill Adams

pointed out that both the U.S. and Canadian economies grew faster this year than

the Bank of Canada had expected in early 2017, "fueled by a welcome recovery of

the energy and manufacturing industries, and excellent gains in the quantity and

quality of jobs."

     This year's employment gains "should translate into higher Canadian wages

in 2018," Adams told MNI, citing signs of it in the October payrolls report

released earlier Wednesday.

     The Statistics Canada report showed average hourly earnings rose 3.1%

year-over-year in October, the largest gain since August 2014, with Adams noting

it is "solidly outpacing CPI inflation of 1.4%."

     IHS Markit Economist Arlene Kish added "there is anecdotal evidence to

suggest that there is a shortage of workers in some industries in some

provinces," such as construction in British Columbia, which should put upward

pressure on both labor demand and wages.

     The combination of higher minimum wages, notably in Ontario, and tighter

labor market conditions should lead wages to rise toward 3%, perhaps even more,

BMO analyst Benjamin Reitzes told MNI.

     --LIMITED ACCELERATION

     According to Hays Canada Salary Guide survey released in late November, 52%

of employers plan to increase wages by less than 52% next year.

     Rowan O'Grady, president of Hays Canada, told MNI the main reason for

employers' conservative approach despite the stronger economy is to increase

profitability, as they still remember the oil price crash and it is still "too

soon" to commit to increase their cost base.

     O'Grady expects that before companies invest permanently, and start

increasing salaries, it takes about two to three years after a shock if past

crises are any guide. That would mean about two more years from now.

     That being said, "it could happen faster" if employees' turnaround starts

increasing as they feel more confident amid growing signs of a strengthening

economy.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

[TOPICS: M$C$$$]