Canada’s Unemployment Rate Fell To 2019 Levels, Reinforces Need For Rate Hikes

Canadian employment made huge gains, as the economy continues to bounce back. Statistics Canada (Stat Can) reported employment increased by 337,000 (+1.8%) jobs in February. Rising jobs pushed the unemployment rate down to just 5.5%, the lowest since May 2019, before public health measures. Experts see the robust employment gains supporting much higher interest rates.

Canadian Employment Change Since February 2020

The percent change of employment for public sector, private sector, and self-employed Canadians since February 2020.

Source: Statistics Canada; Better Dwelling.

Canada Is Seeing Bigger Government, Fewer Entrepreneurs

The gap between government employees continues to grow. Since February 2020, public sector employment increased 8.0% by the end of last month. Over the same period, the number of self-employed people fell 8.5% lower. Private sector employment gains were just above the midpoint at 2.4% growth. Entrepreneurs lost during the pandemic don’t seem to be bouncing back. The losses are made up by expanding government, and minor private sector gains.

More Government Jobs and Fewer Entrepreneurs In Canada

The share of gross domestic product (GDP) from housing investment (residential investment) and Machinery & Equipment investment.

Source: Statistics Canada; Better Dwelling.

Industries Shut Down Due To Public Health Measures Are Back

Employment in sectors hit the worst by public health measures made big gains last month. Accommodations and food service for instance, saw an increase of 114,000 (+12.6%) jobs from a month before. Culture and recreation is also gearing up for reopening with 73,000 (+9.9%) growth for the month as well. These two segments represent half of employment growth seen last month.

As restrictions are further lifted, expect these industries to see slower growth. There’s a big lift from the initial rehiring, though there’s also a lot of growth. It’s safe to say this segment will be providing a decent lift to GDP over the next few months.

Canada’s Employment Gains Will Support Higher Interest Rates

Employment is back to pre-2020 levels, but interest rates are over 70% lower than they were back then. With inflation at a 30-year high, employment can support much higher interest rates. “The labor market is in excellent shape, so the Bank of Canada should continue to normalize monetary policy over the coming months,” says Desjardins senior economist Benoit Durocher. 

“We expect it to raise the target for the overnight rate a second time on April 13 and follow that up with additional rate hikes this spring and summer. This rise in key rates should help to intensify the fight against the acceleration of inflation,” he adds.