MNI: Canada Wages Accelerated In Dec Even As Job Growth Stalls

Canada's labor market wrapped up 2023 with a continued mix of fat wage gains frustrating the central bank's inflation fight even as a record boost of available immigrant workers outstrips slow job creation. 

Employment grew by a scant 100 positions in December according to Statistics Canada's report Friday from Ottawa, lagging the consensus forecast for 12,000 new jobs, and the unemployment rate held at 5.8% instead of climbing a notch as economists predicted. While the working age population grew 74,200 on the month as part of one of the biggest population booms since just after World War II, the labor force comprised of people more actively looking for work rose by just 4,800.

Average hourly wages still accelerated to a 5.4% increase from a year ago versus the November pace of 4.8%. Since the pandemic some of the wage gains have come from workers switching into higher-paid industries and the December report showed a gain in scientific and healthcare and a third straight decline in wholesale and retail positions. 

Investors have been paying closer attention to wages as they assess whether the Bank of Canada will cut interest rates around the middle of this year, and wages for much of 2023 ran around a 5% pace that's well above the central bank's 2% inflation target. Wages are running well ahead of consumer price gains of around 3% after lagging a surge in prices during the pandemic. Bank officials have said there are upside risks from wages running hot at a time when worker productivity is sliding, and also from price expectations becoming embedded after nearly three years of inflation running above target. Officials say inflation will remain above target until 2025.

The Bank has hiked rates 10 times to the highest since 2001 at 5% and officials have said they are prepared to act again if needed while also suggesting there's more evidence they have done enough. Economic growth has stalled in recent quarters and the unemployment rate has climbed nearly a percentage point from record lows in the past year. Judging slack in the economy is complicated by record immigration boosting labor supply but also adding to the squeeze on housing prices and rents. 

The job report showed hours worked, which many economists use as a proxy for GDP growth, rose 0.4% in December and 1.7% on a year-over-year basis.

Employment growth will need to be much faster in 2024 to balance the labor market. StatsCan has said population growth in recent months means job gains around 50,000 per month are needed for the employment rate to remain constant.

Even with employment growing a solid 2.2% last year or by 430,000, job gains slowed in the second half to an average 23,000 per month, compared 48,000 in the first half. Canada's employment rate has declined 0.9 percentage points from its recent high of 62.5% recorded in January.

Another indicator of softness was December's decline in full-time work of 23,500 positions, while lower-paid part-time work rose by about the same amount. 

Weak job growth presents another danger because officials have long said the biggest risk to the country's heavily indebted consumers and housing market is rising unemployment. Canadians have racked up debts worth more than the nation's GDP and the IMF and others warn the housing market is one of the world's most overheated.