Canada Employment Preview: Forecasts from five major banks, Unemployment Rate to tick higher

We expect February labour market data to show another gain in employment of 10K. It will however not be large enough to prevent an increase in the unemployment rate to 5.9% as hiring demand keeps falling short of the rising supply of workers. Labour market numbers for January were firmer than expected with wage growth remaining high. But lower job openings continue to highlight slowing labour demand. Other Statistics Canada estimates of wage growth derived from business payrolls submissions have slowed more significantly. The silver lining of all the softening in the economy is that inflation pressures will likely continue to ease rather than reaccelerate. Our base case continues to assume the BoC will start moving the overnight rate lower in June after more data confirms easing inflation back towards target.

Job creation may have cooled to 15K in February, reflecting an economy operating below its potential. This gain, combined with another significant expansion of the labour force and an unchanged participation rate (65.3%), should translate into a two-tenth increase in the unemployment rate, to 5.9%.

We look for Canadian job growth to slow in February with total employment rising by just 5K on the heels of last month's 37K increase. A 5K increase in employment would see the unemployment rate rise by 0.2pp to 5.9%, while wage growth for permanent workers is forecast to slow to 5.1% YoY.

With job listings remaining well below prior peaks and the employee survey of jobs showing a much weaker trend recently, we expect the labour force survey of employment to show a weaker gain in February. The 20K increase we forecast would be well below the average pace of population growth recently, and unless participation declines further that would see the unemployment rate tick back up to 5.8%. Wage growth has been running above 5% in this survey since last July, but that could be partly compositional as lower-paying industries/positions typically see cutbacks first. With a fairly large monthly gain a year ago dropping out of the YoY calculation, wage growth for permanent employees could decelerate to 5.0%, from 5.3%.

After a solid 37.3K increase in employment in January, we expect another strong increase of 45K jobs added in February. Seasonal issues could have possibly boosted employment in January, with an even clearer impact on hours worked last month, which rose at the strongest pace since January 2023. Seasonal issues should not repeat in February and, if anything, suggest downside risks to employment. But in February, substantial population growth may help to boost aggregate employment figures leading to greater entry into the labor force in February will likely result in both solid employment and a rebound in the unemployment rate to 5.8%. Wage growth should moderate only slightly to 5.1%YoY in February, continuing to move sideways around 4-5% as it has for over a year.