News & Analysis

The Canadian economy added 72.5k jobs in March, falling shy of the 79.9k expected by analysts. This follows a sizable employment decline in January and recovery in February as Omicron-related health restrictions were tightened, then relaxed in Canada’s most populous provinces of Ontario and Quebec.

Despite falling slightly short of analyst targets, the employment gain substantially exceeded the average monthly gain seen over the last 10 years, which is just below 20k jobs per month. That, along with a participation rate that held flat at 65.4%, helped lower the unemployment rate to 5.3%, a new record low since data collection began in 1976. The more moderate but nevertheless robust March job gain was hinted at by alternate indicators like OpenTable restaurant bookings and Google mobility indices, which showed activity pick up in March, but at a slower pace than in February.

Seeing that the employment to population ratio has returned to its pre-pandemic, February 2020 level of 61.9% but is still 1.5pp below its March 2008 peak of 63.4%, and the participation rate falls more than 4% short of its 2003 highs, the record low in the unemployment rate should be viewed as a signal that labour markets are reasonably tight but not over-interpreted as the hottest labour market on record.

Both hours worked and hourly wages grew in March, suggesting that an increase in labour demand was the primary factor underlying the improvement in labour market dynamics, however, wage growth is yet to reflect the historically limited level of slack as outlined by other labour market measures.

Unemployment drops to multi-decade lows but wage growth isn’t strong enough to bring the participation rate back near historical highs

The market reaction to today’s data was limited for three reasons. Firstly, the developments in the labour market were accurately predicted by economists. Secondly, market positioning heading into today’s data had already encompassed the likely Bank of Canada response.

Strong labour developments merely confirm both market pricing and our conviction of a 50bp hike next week from the Bank of Canada. Finally, wage growth in Canada only ticked up by 0.1% MoM to 3.4% YoY. With wages still tracking below the pre-pandemic level of 4%, the BoC is unlikely to press the panic button and signal back-to-back 50bp hikes in Q2. While wage growth is a lagging indicator of a tight labour market, and is therefore likely to rise in coming months, the sanguine rise in March means the BoC will keep markets guessing over June’s decision. In the aftermath of the data release, USDCAD briefly dropped 20 ticks (0.14%), before gains in the loonie were retraced. Volatility was also fairly limited in bond markets: yields on the 2-year rose just 2bp after the data, while the 10-year rose only 3bps, with both moves slightly retracing 15 minutes after the release.



Simon Harvey, Head of FX Analysis
Jay Zhao-Murray, FX Market Analyst


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