News & Analysis

Canadian employment increased by 336.6k in February, more than doubling economist estimates. The net employment gain saw a complete reversal of January’s 200k Omicron-induced job losses, resulting in the unemployment rate falling from 6.5% to 5.5% to sit close to May 2019’s record low of 5.4%.

Full time employment rose by 121.5k, reversing January’s 82.7k contraction, while part-time employment rose by 215.1k following January’s 117.4k drop. Hourly wage growth also climbed higher to 3.3%, up from 2.4% previously, despite an uptick in the labour market participation rate.

This was the most interesting development in the headline indices as it suggests a substantial tightening in the labour market—demand for employees is substantially outstripping supply, raising wages which is bringing more participants into the labour market.

At 3.3%, hourly wage growth sits just 0.2 percentage points below the 2019 average of 3.5%, which was measured over a period where the labour market was historically tight.  Other metrics also point to a tight labour market, as total hours worked increased 3.6%, while the employment-to-population rate rose a full percentage point to 61.8% –  the first time it has returned to pre-pandemic levels. At a headline level, February’s labour market report has been big for markets, with front-end Canadian bond yields rising a further 8bps to yield 1.62%, while the loonie continued its rally to reverse losses on the week against the dollar as the USDCAD pairing looks to break back below the 1.27 handle.

USDCAD drops below Monday’s open after bumper February jobs report 

Job gains were concentrated in the services sector, which at a 292.7k gain, contributed to 87% of the total increase in Canadian jobs. On a more granular level, four out of every five services jobs were created in the accommodation & food (+113.8k), information, culture, & recreation (72.7k), and professional services (+47.3k) industries. Employment gains were broad based, with increases in 8 of 10 provinces and 12 of 16 industries. Furthermore, employment increased for every single age and sex cohort for both full and part time work. According to StatsCan, the labour underutilization rate, which measures people that could easily join the workforce or wish to ramp up their hours, fell by 3.8 percentage points to 12.1%, returning to its pre-pandemic level.

If you didn’t think slack was absorbed last time around, you’ll be singing a different tune today as StatCan showed us an undeniably robust job market undergirding the Canadian economy. We always questioned whether the BoC would regret not hiking rates back at January’s meeting.

As William Blake posited; “hindsight is a wonderful thing,”  and in the context of today’s labour market data, it suggests the BoC may have missed a step by holding out. This is especially the case given the latest inflationary shock, which, combined with today’s wage growth print, show the inklings of a wage-price spiral that could prove challenging for Tiff Macklem and friends to tame should it catch ablaze. We continue to expect the Bank of Canada to hike rates by 25bp in April and begin quantitative tightening, with today’s data merely increasing our conviction.

Services led the bounce back from Omicron job losses


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


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