Canadian labor markets firmed, but still soft, in December – RBC Economics

The December labor market numbers are clearly firmer than expected, with headlines and details broadly better than feared. Still, the data is notoriously volatile, and the unemployment rate is still up almost a percentage point from a year ago and at its second highest level (outside of the 2020/21 pandemic) since 2017, RBC Economics’ economists note.

Canadian employment in December faces the largest increase in almost 2 years

“We continue to think it is unlikely that the broader uptrend in the unemployment rate has ended (the 3-month average rate continued to rise in December) with hiring demand (job openings) still running well below year-ago levels.” 

“The Bank of Canada (BoC) already flagged in December that with interest rates no longer clearly at 'restrictive' levels, and inflation running back around the central bank's 2% target, the pace of rate cuts will be more gradual, and contingent on the evolution of economic data, going forward.”

“We continue to expect that ultimately the BoC will need to cut the overnight rate to slightly 'stimulative' levels this year - below the 2.25% to 3.25% the BoC currently estimates as the likely range for the current neutral rate.”