Surprisingly strong employment gains in August are keeping the door open to an additional Bank of Canada rate hike this year, economists say.
Statistics Canada reported that nearly 40,000 new positions were created in the month, consisting of over 32,000 full-time and nearly 8,000 part-time jobs.
That kept the nation’s unemployment rate unchanged at 5.5%.
“The job market is keeping everyone guessing,” noted James Orlando of TD Economics. “While the positive job gain provided an offset to weakness in prior months, the population boom (+103k!) is causing labour force growth (+54k) to outpace hiring.”
The strongest job gains were seen in professional, scientific and technical services (+52k) and construction (+34k), while losses were reported in educational services (-44k).
Statistics Canada also reported that average hourly wages were up 4.9% in August, down slightly from 5% in July.
Leaving the door open to further rate hikes
Today’s employment data complicates the recent streak of weaker economic indicators, including slowing consumer spending and slowdown in GDP growth in the second quarter.
Economists say the Bank of Canada will want to see further signs that its 475 basis points of tightening over the past 18 months are working to slow the economy.
BMO chief economist Douglas Porter says the August employment data “likely doesn’t move the needle much,” and that instead the Bank will look to other data that will be coming out in the coming weeks.
“…it’s not strong enough to prompt an immediate rethink on the pause, but it’s also certainly not soft enough to rule out further hikes,” Porter wrote. “The next decision will largely hinge on how the CPI fares in the next two readings.”
CIBC’s Andrew Grantham added that recent calls that Canada is headed for an imminent recession may have been “premature,” particularly since the 0.5% increase in hours worked serves as an indicator for the August GDP report and suggests activity “may have rebounded.”
“Indeed, a still-low unemployment rate and strong wage growth suggest that, in the near term at least, further interest rate hikes rather than cuts are more likely,” he wrote. “However, we still think that the Bank is done with interest rate hikes at this stage, with the unemployment rate likely to move higher in the coming months and approach levels which should slow wage growth and overall inflationary pressures in the future.”