MNI: Canada Job Gain Doubles Forecast And Wage Gains Stay Hot

Canada's job gain more than doubled market forecasts in August while annual wage increases held close to 5%, government figures showed Friday, indicating further economic resilience two days after the central bank held interest rates and said policy makers can hike again if needed to tackle stubborn inflation. 

Employment climbed by 39,900 in Statistics Canada's report from Ottawa versus a Bloomberg consensus for a 17,500 gain, more than reversing July's 6,400 job loss. The unemployment rate remained 5.5% versus the consensus it would rise to 5.6%, holding in pace after climbing half a percentage point over the prior several months. Unemployment slid to a record low 4.9% last year.

Bank of Canada Governor Tiff Macklem said in a speech Thursday he's watching wage gains closely as he considers whether to raise interest rates beyond the highest since 2001 at his next meeting in October, and StatsCan said wages rose 4.9% from a year earlier in August following July's 5% increase. That suggests worker compensation is catching up in real terms with wages running ahead of CPI at 3.3% after a phase when pay gains lagged well behind.

Officials held their key borrowing rate at 5% Wednesday and said that while the economy has slowed a phase of weaker growth is needed to balance overheated demand. Most economists see the Bank holding again next month though a few forecasters predict another increase. The Bank has a single mandate to keep inflation at 2% and officials say there's a risk it will get stuck above target after overshooting for the last two years.

Other bits of the job report suggest the labor market is running ahead of GDP that shrank at a 0.2% annualized pace in the second quarter. Hours worked, sometimes viewed as a proxy for GDP, rose 0.5% on the month 2.6% from a year ago. Many economists view hiring as a lagging indicator and the consensus is that Canada's economy is teetering around a technical recession. Governor Macklem said in his speech that while there may be some quarters with small GDP contractions those aren't the kind of major setbacks most people consider a recession.

Hiring was led by better-paying full-time jobs that increased by 32,200 while part-time gained 7,800, StatsCan said. Employment increased about 52,000 in professional, scientific and technical services and by 34,000 in construction, while education fell 44,000 and manufacturing by 30,000. Education figures have been questioned by market economists in recent years after some volatile swings related to accounting for contract workers around the back-to-school season.

Record immigration is having an influence on the job market, with StatsCan noting 50,000 jobs are now needed each month to hold the rate of employment steady, double the requirement in the years before the pandemic. Employment has risen about 25,000 a month on average this year, versus 81,000 growth in the working age population. Experts have struggled to define how all the new residents and workers could either drive up demand in a stretched housing market or reduce inflation by adding to supply. 

The August job market gains raise questions about consumer spending and the lagged effect of monetary policy, since the peak effect of the Bank's dramatic 100bp rate hike last July should be flowing through the economy about now. Slower consumer spending dented GDP in the second quarter but some households still have extra savings from Covid relief checks and other people aren't burdened with mortgages being reset at much higher interest rates.