Statistics Canada reported that the unemployment rate dropped to 5.7 per cent in December to reach its lowest mark since comparable data became available in 1976.
Canada’s economic engine churned out jobs at a better-than-expected pace last month, driving the unemployment rate to a 41-year low and increasing the odds of an interest rate hike, perhaps as soon as this month.
In its monthly report Friday, Statistics Canada said the Canadian economy created nearly 80,000 jobs for the second month in a row in December on a surge in part-time employment. The jobless rate fell to 5.7 per cent to reach its lowest mark since comparable data became available in 1976.
The employment and jobs numbers topped the consensus forecast of economists by a wide margin and leave next week’s business outlook survey as the last key piece of information ahead of the Bank of Canada’s Jan. 17 rate decision, said BMO senior economist Robert Kavcic.
“If that report flags tightening capacity and broadening labour shortages, the bank may not wait until March.”
In deciding whether to boost borrowing costs, Bank of Canada Governor Stephen Poloz must balance the potential for wage-growth induced inflation against new federal rules raising the threshold many home buyers must reach to qualify for a mortgage, Kavcic added.
Friday’s jobs report “certainly does increase the odds, [of a hike] but not to 100 per cent,” he said.
The likelihood that Poloz will increase the benchmark rate by 25-basis points in January jumped to 70 per cent midday from 40 per cent Thursday after the employment and jobs report, according to a Reuter’s analysis of swaps market trading. The bank last year raised the historically low key rate by two quarters of a percentage point to 1 per cent.
Kavcic said the national economy is already showing worker shortages in hotspots including the GTA, where the jobless rate of 6 per cent stands at a 16-year low. Manufacturers in the GTA are benefiting from factors including moderate fuel costs along with remaining government economic stimulus measures.