About those rate cuts....

The strong jobs data reported in Canada this morning -- strong at the headline level, at least -- seem likely to quell expectations that the Bank of Canada will make an early start on reversing its recent rate hikes. At the same time, there are plenty of issues behind the headline figure for the Bank to think about as it contemplates its future policy moves. 

According to Statistics Canada, employment rose by 37,000 in January, after being little changed over the three preceding months. As a result the unemployment rate, which had been rising gently through 2023 as a result of rapid growth in the population and the labour force, ticked down to 5.7 percent.  The year-on-year gain in wages edged down marginally from the previous month to stand at 5.3 percent, still too high for the Bank's comfort as it seeks to bring CPI back to the 2 percent target. 

On the face of it, today's numbers are incompatible both with the idea that the economy is on the brink of recession and with the belief that rate cuts must start soon. However, a look behind the headline numbers creates a somewhat more nuanced picture.  Most notably, full-time employment actually fell by almost 12,000 in the month, with the headline gain entirely the result of a rise of almost 49,000 in part-time positions.  Given the volatility of the monthly data, it is important not to read too much into this: over the past year, the economy has added 227,000 full-time jobs, as against 119,000 part-time.  Moreover, total hours worked rose 0.6 percent from the previous month, despite the preponderance of new part-time jobs. 

Despite the slight fall in the unemployment rate, it remains unclear that the economy can create jobs at a sufficient pace to keep up with population growth. Over the past twelve months,  the impressive gain of 345,000 new jobs is dwarfed by both the increase in population (just over 1,000,000) and the increase in the labour force (515,000).  The data for January are frankly puzzling: population surged by a further 125,000, but the labour force rose by only 18,000.  It seems certain that many more of the immigrants will soon enter the labour force, which will again start to exert upward pressure on the unemployment rate.  

Much for the Bank of Canada's policymakers to consider there, though there is enough strength in the data to give them time to think carefully about their next move.  And one other consideration may be coming back into play.  According to this article, the housing market in Toronto, by far the largest in Canada, is "roaring back to life", apparently partly driven by buyers anticipating the imminent arrival of lower interest rates.  Not what the Bank wants to see, and further evidence that the smart policy choice would be to wait until mid-year before starting to cut rates.