Canada’s economy added 22,000 jobs in February, unemployment rate steady at 5% – The Globe and Mail IG News

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Bank towers are shown from Bay Street in Toronto’s financial district on June 16, 2010.Adrian Veczon/The Canadian Press

Canadian wage growth rose in February to more than 5 per cent, a potential blow to the Bank of Canada as it tries to tame inflation and a rolling labor market.

On an annual basis, average hourly wages rose 5.4 per cent to $33.16, up from a 4.5 per cent pace in January, Statistics Canada said in a report on Friday. Financial analysts were expecting a wage increase of 5.1 percent. To an extent, the numbers were influenced by a comparison to February, 2022, when low-paid service workers were rehired following the COVID-19 lockdown, which brought down average wages that month.

While workers are benefiting from tighter labor market conditions, Bank of Canada officials have repeatedly said that wage growth will need to slow and that unemployment will need to rise for the central bank to reduce inflation, which It was last measured at an annual rate of 5.9 percent. ,

Thus far in 2023 the labor market is progressing. Employers added nearly 22,000 positions in February, according to a Friday report, after a blockbuster gain of 150,000 jobs in January. The unemployment rate held steady at 5 percent, which is close to an all-time low.

“After the January jobs hoard, this result is too strong for the BOC to comfort,” Doug Porter, chief economist at Bank of Montreal BMO-T, said in a client note. “There is no sign that the labor market is coming under fire from the rapid fire of the past year.”

Earlier this week, the Bank of Canada kept its policy rate at 4.5 per cent, a pause it telegraphed after eight consecutive rate hikes beginning in March 2022. Still, the central bank has left the door open for additional rate hikes if inflation does not ease as expected.

The bank’s latest monetary policy report, published in January, said wage growth “appears to have stabilized” between 4 percent and 5 percent and was no longer rising.

There are several ways to measure salary growth in many Statscan reports. They generally show that wages are increasing by more than 4 percent on an annual basis.

Bank of Canada officials have argued that the current pace of wage increases is not conducive to returning inflation to the 2 per cent target unless there is strong growth in productivity.

However, labor productivity – as measured by real GDP per hour worked – has fallen for three consecutive quarters. Put another way, workers are producing fewer goods and services per hour worked. To compensate for lower production and rising labor costs, many companies will charge higher prices to their customers.

“Productivity growth is a good thing for the economy because it allows businesses to pay higher wages,” Caroline Rogers, the central bank’s senior deputy governor, explained in a speech on Thursday. “If we continue to see above-average wage growth in Canada without strong increases in productivity, it will be difficult to get inflation down to 2 per cent.”

Ms Rogers later said: “So far productivity is not trending in the right direction.”

The central bank has said it will need to see a “collection of evidence” of an overheating economy before raising rates again. Economists and investors generally do not think that the limit has been reached.

Interest rate swaps, which capture market expectations of future rate decisions, are indicating that the benchmark interest rate will remain at 4.5 per cent through the end of the year. Traders are placing shorter odds on a rate hike than on Thursday. BMO’s Mr Porter linked the change in interest-rate expectations to the collapse of Silicon Valley Bank and the widespread fears that swept financial markets this week.

Also on Friday the US reported a gain of 311,000 jobs in February, which exceeded analysts’ estimates. Wage growth slowed on a monthly basis.

In Canada, full-time employment increased by nearly 31,000 positions in February, helping to boost the number of hours worked that month by 0.6 percent. Labor data suggest Canada is headed for positive economic growth in the first quarter; Last year, many analysts on Bay Street predicted a recession by now.

“It’s still a question of whether we have a formal recession or not,” said Beata Caranci, chief economist at Toronto-Dominion Bank TD-T. He added, however, that “it’s really hard to imagine a situation where you can get inflation back down to 2 percent with the unemployment rate down.”

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