Canada job gains surprisingly strong in February, adding pressure for higher interest rates

By Ismail Shakil and Steve Scherer

OTTAWA (Reuters) – Canada’s economy beat expectations by adding 21,800 jobs in February, putting pressure on the central bank to consider another rate hike after saying it wants to end its year-long tightening campaign, how Data on Friday showed.

Analysts polled by Reuters had forecast a net gain of 10,000 jobs after January’s rise of a whopping 150,000. The unemployment rate held steady at 5.0% in February, while economists had forecast a rise to 5.1%.

Average hourly wages for permanent employees rose 5.4% year over year in February, up from 4.5% in January.

“Evidence is mounting that the labor market is not following the Bank of Canada’s economic plan,” said Royce Mendes, head of macro strategy at Desjardins, noting the acceleration in wage growth.

“Markets will continue to price in high odds of another rate hike from the Bank of Canada after seeing these numbers.”

Money markets see about a 65% chance that the Bank of Canada will hike interest rates again this year, up from 80% ahead of the data. The move lower comes as US wage inflation showed signs of slowing and signs of stress in the US banking system spurred demand for safe haven assets.

The Bank of Canada left its funds rate unchanged on Wednesday, becoming the first major central bank to hit the pause button on rate hikes that began as inflation spiked last year.

On Thursday, the BoC said it was monitoring economic data to assess whether to leave its overnight interest rate at 4.50% or whether to hike higher.

The BoC has said it will keep interest rates on hold as long as inflation falls in line with its January forecast. However, Deputy Governor Carolyn Rogers said Thursday the economy remains in excess demand, citing an “incredibly tight” labor market.

“There is simply no sign that the job market is succumbing to the rapid tightening of the past year,” said Doug Porter, chief economist at BMO Capital Markets.

“Should there be any disappointment in inflation numbers in the coming months, the bank will almost certainly hike rates again.”

Inflation fell to 5.9% in January from a peak of 8.1% last year, and the central bank is forecasting that it will slow to 3% by mid-year.

February’s job additions were led by industries such as healthcare and social welfare and public administration, while fewer people worked in business, construction and support services, Statscan said.

Services added 4,200 net jobs, helped by gains in healthcare and public administration, while goods sector employment added 17,500 net jobs, led by utilities and manufacturing.

Total hours worked rose 0.6% in February, up 1.4% year-on-year.

The Canadian dollar traded 0.2% higher at 1.3795 against the greenback or 72.49 US cents after previously hitting a near 5-month low at 1.3861.

(Reporting by Ismail Shakil and Dale Smith in Ottawa; Additional reporting by Fergal Smith in Toronto; Editing by Jason Neely, John Stonestreet and Andrea Ricci)


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