Canada - Solid job finish, cooling wage pressures

Summary - After a marked deterioration in the labour market in 2024, there was respite to finish the year. Job growth of 91K in December smashed consensus estimates (+25K according to Bloomberg) and the unemployment rate edged lower.

What does this mean for the Bank of Canada? Today’s report could delay the next rate cut, especially if the final inflation reading of 2024 comes in a bit hotter. At the same time, the Bank of Canada will welcome the slowdown in wage growth. The inflationary combo of high wage growth/falling productivity has been on their radar for some time. While a January cut is now less likely, our view holds that the Bank of Canada will keep cutting its policy interest rate in more gradual 25-basis point increments to 2.5% by mid year.

The Details - Employment jumped 90,900 (+0.4%) in Canada last month, mostly in full time (+57,500) positions.

With the job gain, the unemployment rate nudged down 0.1 points to 6.7%. That’s an improvement, but still up a full percentage point higher than at the start of the year.

The employment rate—the share of the population age 15+ with a job—rose to 60.8% last month. This is the first increase since early 2023, though the rate sits near a multi-decade low outside the pandemic.

Even with the strong finish, there is plenty of slack in the labour market. That is, the economy is not growing fast enough to absorb still-rapid population and labour force growth.

One thing that the Bank of Canada seems a little less concerned about these days is wages. Wage growth can be inflationary if not matched by productivity gains and labour productivity has been falling in Canada. The Bank should like today’s jobs report, which showed continued signs of easing: average hourly earnings rose 3.8% y/y—the slowest pace since early 2022.

Alberta - December employment spike lowered the jobless rate

Summary - Alberta posted its largest job gain since the pandemic recovery. This caps off a strong end to the year, with Alberta leading all provinces in job gains for the third straight month. The job increase pulled down the unemployment rate in line with the national average.

The Details - Alberta employment accelerated to end the year, rising by a blistering 35.2K and building on gains in the previous two months. This is the highest monthly gain since March 2021, during the pandemic recovery. Outside the pandemic period, this is the largest monthly gain on record (narrowly eclipsing April 2019’s 34.9K).

Digging deeper, December job gains were entirely in full-time jobs and fairly widespread, with goods-producing industries (+11.7K) and service industries (+23.5K) both chipping in. EEAt the more detailed industry level it was construction (+11.1K), food and accommodation (+8.3K), other services (7.7K) and healthcare (+6.8K) with the largest increases.

While there was a small dip (-2.1K) in forestry, mining, and oil and gas extraction (i.e. natural resource) employment, the trend in this sector has been generally positive and corresponds to the oil production boom in the province (see the year in review section below).

We’re not surprised to see the jump in construction employment given the surge in home building in the province. But with vacancies elevated, we see more room to run on construction payrolls.

With heat coming from new payrolls, the unemployment rate plunged from 7.5% to 6.7%—its lowest level since March 2024. More notably, Alberta’s unemployment rate moved in line with the national rate for the first time since September 2023 (rapid population growth and labour force entry has contributed to a higher unemployment rate in 2024—see the year in review section below). The decrease in unemployment came despite a small uptick in the labour force participation rate.

Forecast implications - There is no question this is a solid jobs report to end the year, reinforcing our view that Alberta’s economy was entering 2025 with momentum. Our December forecast has Alberta’s economy growing 2.5% this year, outpacing the national average. But caution is in order. Geopolitical uncertainty is high with the incoming U.S. President threatening tariffs, leading us to develop a range of potential tariff scenarios.

In our base case, we see employment advancing at a more gradual rate of 1.8% this year and the unemployment averaging 7%. The labour force surveys are notoriously volatile, and we’ll wait to see if the current trend holds before changing our call. But if the fourth quarter momentum continues, there is clearly upside to our forecast.

Labour market year in review

With the December data in hand, we now have a complete picture of 2024.

The Canadian labour market softened last year, with employment growth easing to 1.8% and the unemployment rate averaging 6.3% (up from 5.4% in 2023). The uptick in the jobless rate started in April 2023, and then kept climbing throughout 2024. It finished at 6.7%, up a full percentage point from January.

This was a tale of two stories: slowing job growth and persistent population gains. In short, jobs could not keep up with people looking for work—particularly among newcomers to Canada and youth.

Alberta followed a similar trend, but finished the year on a much stronger note.  In the fourth quarter, it led all provinces in job creation. That made up for a lull in the second and third quarter. Overall job growth came in at 3.2%, compared to 1.8% nationally and lagging only P.E.I. and Nova Scotia. This was a moderation from the 3.6% pace in 2023 when employment was still bouncing back from COVID disruptions and before the big drag from higher interest rates.

Digging deeper, the composition of Alberta job gains was mostly full-time and in the private sector (in contrast, nearly half of national employment gains came from the public sector last year).

Among the major sectors, Alberta job growth was fairly widespread—led by services. There was a big comeback in forestry, fishing, mining, quarrying, and oil and gas (mainly oil and gas) at +15.7K, corresponding to the jump in oil production. Accommodation and food (+11.6K) also continued to bounce back from the pandemic lows. Somewhat surprisingly, construction employment posted a fairly modest increase (+4.1K) despite booming home construction and the start up of major industrial projects. This could reflect the impact of labour shortages as vacancies in the industry remain elevated. We look for further construction employment gains this year.

Despite the solid job gains, 2024 was also a year that the labour market struggled to keep up with a booming population. Alberta led all provinces in annual population growth in 2024 at 4.4% (mid-point of year). The influx of migrants added to the number of people joining the labour force in search of work. The labour force spiked 4.4% (+115K), outpacing the 3.2% (+79K) increase in employment. As such, the average unemployment rate rose 1.1 points to 7%.

For the daily trivia question and answer, please see this week’s edition of The Seven.