In recent weeks, Canada has been implementing measures to bolster its economic outlook and has continued to do so incrementally. For this week, the Bank of Canada opted to keep interest rates unchanged, and economic data revealed a surge in job creation, surpassing expectations by nearly double.
Canada sees a notable increase in jobs
In Canada, the economy saw a notable increase of 39,900 jobs last month, nearly double the expected figure. However, it’s worth noting that this number falls short of what would be required to keep pace with population growth. According to Statistics Canada’s report, while jobs were added, the country welcomed approximately 103,000 new individuals. Consequently, despite the uptick in employment, the employment rate, which measures the percentage of working-age adults with a job, decreased by 0.1 percentage points, settling at 61.9 percent.
Breaking it down by sectors, the professional, scientific, and technical services category showed significant strength, contributing 52,000 positions. The construction sector also saw notable growth, with an addition of 34,000 jobs. On the flip side, the education sector experienced a loss of 44,000 jobs, while manufacturing saw a decline of 30,000 positions.
A significant portion of the newly created jobs in Canada were in self-employment, with an expansion of 50,000 positions. The public sector saw an increase of 13,000 jobs, while the private sector saw a contraction of 23,000.
Economists had anticipated the addition of approximately 20,000 jobs, and some even speculated a decline, which would have marked the second consecutive contraction in the job market. So far this year, Canada’s job market has welcomed around 174,000 new positions, averaging about 25,000 new jobs monthly. However, this number is overshadowed by the fact that the working-age adult population has increased by roughly three times that amount, with Canada’s population growing by an average of 83,000 individuals aged 15 or older every month.
According to Doug Porter, an economist with the Bank of Montreal, the continuous influx of over 800,000 newcomers to Canada in the past year is the primary driving force behind the current job market. He noted that Canada now needs a steady flow of jobs to match raging population growth.
Canada’s central bank keeps the rate at 5%
Bank of Canada governor Tiff Macklem addressed a business audience in Calgary on Thursday, highlighting the central bank’s observation that even in months when the economy sees job growth, it’s not outpacing the rate of population expansion.
Macklem explained that that suggests that the supply of workers is growing more than the demand for workers such that the supply is catching up with demand, and the pressures are lowering. While the Bank of Canada chose to maintain interest rates at their current level, they have left room for potential future increases, as inflation demonstrates resilience.
The Bank of Canada kept the benchmark overnight lending rate at 5% on Wednesday, maintaining its highest level in 22 years. Economists widely anticipated this decision, marking the third instance in this tightening cycle where policymakers chose to maintain the current rate. Borrowing costs have risen by 475 basis points since March 2022.
The central bank explained its decision by stating that with recent evidence that excess economic demand is easing, the governing council decided to hold, given the lagged effects of monetary policy. However, policymakers remain vigilant regarding the persistence of underlying inflationary pressures and are prepared to increase the policy rate further if necessary.
While the rate pause and the accompanying statement suggest that policymakers are comfortable waiting to assess whether the economy’s deterioration will help restore price stability, they continue to express concerns about inflation’s persistent momentum. Maintaining this hawkish stance may allow Governor Macklem to avoid a repeat of the explicit pause signal from January, which led markets to anticipate future rate cuts quickly and reignited Canada’s housing market.
Canadian economy’s period of weaker growth
After signaling a pause in January, the Bank of Canada abstained from rate changes for five months. It resumed rate hikes in June and July, driven by unexpectedly robust economic growth. However, recent indicators suggest the central bank’s efforts have effectively curbed excessive demand.
The bank stated that the Canadian economy has entered a period of weaker growth, which is needed to relieve price pressures. That reflected a marked weakening in consumption growth, a decline in housing activity, and the impact of wildfires in many regions of the country.
Despite wage growth hovering around 4% or 5% and inflationary pressures remaining widespread, policymakers acknowledge the challenge of reaching the final stretch in returning inflation to the 2% target. They caution that the longer high inflation persists, the greater the risk that elevated inflation becomes entrenched, making it more difficult to restore price stability.
The bank retained the last three sentences of the rate statement, emphasizing the key metrics that policymakers will closely monitor. These include the evolution of excess demand, inflation expectations, wage growth, and corporate pricing behavior.
Governor Macklem will provide further insight into the central bank’s perspective and outlook for the Canadian economy during a speech at the Calgary Chamber of Commerce on Thursday. Following the address, he is scheduled to discuss the bank’s stance with reporters.
The Bank of Canada’s next policy decision is slated for October 25, following significant economic data release, including job figures, inflation rates, retail data, and gross domestic product numbers for July and an August estimate. These key indicators will be crucial in informing the bank’s upcoming monetary policy decisions.
