Bank of Canada may lean on forward-looking data amid jobs gain: Economist

With new monthly data showing continued strength in Canada’s labour market, one economist said he thinks the Bank of Canada will focus more on forward-looking data in its rate decision next week.

Statistics Canada reported Thursday that the country beat expectations and added nearly 35,000 jobs in March, with the unemployment rate holding steady at 5.0 per cent.

Derek Burleton, deputy chief economist at TD Bank, said the consecutive months of hefty jobs gains have been “incredible,” particularly given the past year of central interest rate hikes by the Bank of Canada in its fight to bring down inflation.

He said he expects the job market will slow down later this year, however, and for that reason, he said he expects the Bank of Canada’s April 12 rate decision will weigh future expectations more heavily.

“I would imagine when we look to the Bank of Canada next week that they’re going to put more weight on their forward-looking sentiment data,” Burleton told BNN Bloomberg in a television interview on Thursday. 

“I don’t think this is going to influence their outlook on inflation, which has been encouragingly coming down, and on the fact that this is just a matter of time before hiring, which is a lag, begins to slow down.”

The central bank held its key overnight rate at 4.5 per cent last month, after a year of consecutive increases from 0.25 per cent in March 2022.

Labour market tightness has been a source of concern for the Bank of Canada during its interest rate tightening policy cycle. But the central bank’s last rate decision statement said it expects pressures in the labour market to ease in the “next couple of quarters,” which should “moderate wage growth” and make it more difficult for businesses to pass costs down to consumers.

Consumers and businesses, meanwhile, appear to be bracing for a possible mild recession, according to survey data from the Bank of Canada released this week that saw business sentiment turn negative for the first time since 2020.

Burleton said he suspects the recent jobs numbers are partly a “statistical illusion” as data readjusts from pandemic business shutdowns and behavioural shifts, but the outsize March jobs gain “speaks to how extended this (monetary policy) cycle is going to be.”

“Employment is a lagging indicator, it’s going to take longer,” he said. “It’s just a matter of time, but we will start to see some more visible impacts on hiring. It has to be the case at some point.”