Canada’s January unemployment rate to hit 5.9%—highest since the pandemic

Canadian job figures for January will take the spotlight next Friday, drawing the attention of policymakers and market observers eager to gauge the health of the labor market. Reflecting trends seen throughout 2023, the data for the initial month of 2024 is anticipated to mirror a familiar narrative—employment on the rise but at a pace insufficient to stem the uptick in the unemployment rate.

Projections suggest that Canada’s unemployment rate likely reached 5.9% in January, marking an increase of nearly a full percentage point from the 5% recorded a year earlier. This represents the highest rate since the onset of the pandemic in January 2022. An additional 10,000 jobs are expected to have been added since December, albeit at a rate insufficient to match the country’s rapid population growth.

Furthermore, indications point to a continued slowdown in hiring demand. Job postings on Indeed.com declined by over 6% in January compared to December, signaling fewer opportunities for new entrants into the labor force. Recent trends show that students and recent graduates searching for employment have contributed significantly to the rise in the unemployment rate. Despite employment figures showing growth in the fourth quarter, actual hours worked have declined.

The Bank of Canada will closely monitor wage growth for further insights into the softening of labor markets. Thus far, growth in average hourly earnings has remained steady, with potential for further increases, especially as contracts for unionized workers continue to adjust to inflation. This factor is expected to provide a foundation for wage hikes in the short term. However, business surveys widely indicate that wage growth is likely to decelerate as hiring demand moderates.

Students are identified as a driving force behind the recent uptick in unemployment, according to data from Statistics Canada and RBC Economics. Post-secondary graduates who were previously out of the labor force and engaged in education before seeking employment have notably contributed to this trend.

Looking ahead, expectations for Canada’s trade surplus in December suggest a contraction to $1.2 billion from November. The anticipated decline in exports by 2.2% is attributed to lower shipments of motor vehicles and reduced oil prices. Similarly, the US trade balance for December is forecasted to improve, with the deficit narrowing to $-61.1 billion from $-63.2 billion in November, driven by increased goods exports and imports.

In summary, the upcoming release of January’s job data in Canada will provide crucial insights into the evolving labor market conditions, amid concerns of a rising unemployment rate and slowing hiring demand. Additionally, trade balance figures for both Canada and the US are anticipated to reflect adjustments influenced by various economic factors.

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