Canada Job Surge Spurs Traders to Pare Rate-Cut Bets
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Canada Job Surge Spurs Traders to Pare Rate-Cut Bets
Randy Thanthong-Knight
4 min read
(Bloomberg) -- Canada’s biggest job gains in two years capped off 2024 on a high note before the economy is potentially thrown into a tariff war with the US.
Employment rose by 91,000 in December, the most since January 2023, bringing the jobless rate down 0.1 percentage points to 6.7%, Statistics Canada reported Friday. Economists in a Bloomberg survey were expecting a small increase of 25,000 jobs with the unemployment rate rising to 6.9%.
The better-than-expected gains are a stark contrast from much of last year, when hiring couldn’t keep pace with population growth and joblessness surged. Over the past year, the economy added jobs in nine of 12 months, with average monthly job increases of about 47,000. The labor market softness had convinced the Bank of Canada to cut borrowing costs by half a percentage point at two straight meetings at the end of last year.
The report came at the same time as US data showed nonfarm payrolls increased by 256,000 and the unemployment rate fell to 4.1%. The loonie maintained the day’s loss against the US dollar, trading at C$1.4410 as of 8:50 a.m. in Ottawa. Canada’s two-year yield rose 10 basis points to 3.04%, the highest in nearly three weeks, tracking a move higher in US and developed market yields.
Traders in overnight swaps pared expectations of a quarter percentage-point cut from the Bank of Canada later this month, putting the odds at about 60%, from three-quarters before the data was released.
In Canada, policymakers have signaled they’re ready to return to a more gradual pace of rate cuts, and a stronger job market will likely make a case that they’re closer to the end point of their easing campaign. Despite the threat of 25% tariffs on Canadian goods by President-elect Donald Trump and souring consumer confidence, businesses still added jobs in an economy fueled by aggressive rate cuts since June.
Yearly wage growth for permanent employees decelerated to 3.7%, the slowest pace since April 2022, versus economist expectations of 3.8% and down from 3.9% in November. Total hours worked rose 0.5% last month, also ending the year on a relatively solid note.
The data suggest the Canadian economy is beginning to find its footing, Karl Schamotta, chief market strategist at Corpay, said in a report to investors.
“But we suspect the Bank of Canada’s dovish stance will remain intact for now, with officials continuing to push rates into neutral territory — and perhaps beyond — as they attempt to build a firewall against further weakness, particularly if Donald Trump follows through on his threats to apply tariffs against Canadian goods,” Schamotta said.
Given the still-elevated unemployment rate and the cooler wage readings, the data still leave the Bank of Canada in a position to cut rates, said Royce Mendes, managing director and head of macro strategy at Desjardins Securities.
“With more aggressive tariff threats weighing on business confidence and the recent rise in global bond yields tightening domestic financial conditions since the last policy decision, our rates outlook remains intact. We still see the Bank of Canada cutting rates later this month, but then pausing in March,” Mendes said in a report to investors.
Governor Tiff Macklem and his officials next set rates on Jan. 29, when they will also update their economic forecasts as Canada braces for broad tariffs on its products destined for the US, which could potentially plunge the economy into a recession.
Last year, 1.8 million workers, or 8.8% of total employment, were in industries where 35% or more of jobs depended on US demand for Canadian exports. Oil and gas extraction, pipeline transportation, primary metal manufacturing and transportation equipment manufacturing are among the most dependent industries on US demand.
What Bloomberg Economics Says
“The December Canadian labor survey was unambiguously good for the central bank. But we think it won’t be enough to stop the BoC from cutting rates further this year.”
— Stuart Paul, US and Canada economist
Read the full report here.
Statistics Canada reported the population rose by 67,100 people in December. That marked the smallest monthly growth in two years and suggests the governments’ efforts to curb immigration are beginning to have an effect, said Bradley Saunders of Capital Economics.
“While weakness in private-sector hiring still gives reason to think the Bank of Canada will cut rates by 25 basis points at this month’s meeting, the odds of a pause have now clearly increased,” Saunders said in a report to investors.
Employment increases spread across several industries, with educational services, transportation, real estate, health care and manufacturing leading the gains. The employment rate — the proportion of the working-age population that’s employed — rose 0.2 percentage points to 60.8% in December, the first increase since January 2023.
Regionally, employment increased in Alberta, Ontario, British Columbia, Nova Scotia and Saskatchewan. Manitoba was the only province to see job losses.
--With assistance from Erik Hertzberg and Carter Johnson.
(Updates market reaction and adds economist reaction starting in paragraph four.)
