Canada’s unemployment rate fell to 5.7% in January, first decline since December 2022

Canada's unemployment rate took a positive turn in January, dropping to 5.7%, a welcome shift after holding steady since December 2022, according to Statistics Canada's recent labor force survey.

In the first month of the year, the Canadian economy saw an uptick, adding 37,000 jobs. This comes as a relief following a period of stagnation in employment. Last year, the country's labor market faced challenges, with high interest rates putting a damper on both consumer spending and business investment. This contributed to an increase in the unemployment rate, climbing from 5.1% in April to 5.8% in December.

The recent job gains, primarily in part-time work, surpassed expectations from forecasters. While the concentration in part-time positions may raise some eyebrows, the overall increase in employment indicates that the central bank is not currently under pressure to consider rate cuts.

Andrew Grantham, CIBC's Executive Director of Economics, commented on the data, noting, "Today's data suggest that the bank won't be in a rush to cut interest rates, and we maintain our expectation for a first move in June." Despite this, CIBC adjusted its forecast on the Bank of Canada's rate cut, expecting it to be less substantial this year.

January's employment growth spanned across various sectors, with notable increases in wholesale and retail trade, as well as finance, insurance, real estate, rental, and leasing. Conversely, the accommodation and food services sector experienced a decline in employment during the same period.

A silver lining in the job market is the continued rapid growth of workers' wages. Canadians are seeking compensation for past inflation, reflected in the 5.3% increase in average hourly wages compared to a year ago. Statistics Canada indicates that wage growth has been more robust for women and high-income earners. While the gender wage gap persists, average hourly wages for women rose by 6.2%, outpacing the 4.4% increase for men.

Examining wage distribution, employees in the top 25% experienced a 5.9% increase in wages, compared to 4.6% for those in the bottom 25%. This indicates that wage growth has been more favorable for higher-income individuals.

A crucial factor supporting Canada's labor market has been the robust population growth, driven by both permanent and temporary immigration. Over the past year, the economy added 345,000 jobs, while the working-age population expanded by one million people.

Looking ahead, as the Bank of Canada maintains its key interest rate at five percent, economists anticipate a rise in unemployment throughout the year. Despite the positive momentum seen in January, challenges may persist, and close monitoring of economic indicators will be crucial to assess the overall health of Canada's labor market.