Employment in Canada showed modest growth in February after months of strong jobs gains, raising concerns that a bustling labour market could lead to more interest rate hikes.
In its labour force survey Friday, Statistics Canada said the economy added 22,000 jobs last month, with employment up in the private sector.
The federal agency said the country’s unemployment rate held steady at 5%, hovering near record-lows.
The bulk of the job gains were made in health care and social assistance, public administration and utilities. Meanwhile, jobs were lost in business, building and other support services.
In January, the economy added 150,000 jobs, beating out forecasts significantly.
Though conditions in the labour market remain quite good — with unemployment just above the all-time low of 4.9% — Statistics Canada’s latest report showed a return to more modest employment growth.
Still, the ongoing strength in the labour market is making many economists nervous about the chance of more rate hikes.
Although the jobs gains are less than previous months, TD’s director of economics James Orlando said it’s still “too high.”
“This is a concern because it means higher wages, which can feed through to higher inflation, and it could derail the Bank of Canada’s efforts to bring inflation down,” Orlando said.
Unemployment is still expected to rise in the coming months as high interest rates take the steam out of spending, slowing the economy.
Signs of that slowdown are already apparent. In the fourth quarter, the Canadian economy was treading water, posting 0% growth.
But Orlando cautioned against focusing only on the headline growth rate. Beneath that number was an uptick in consumer spending, suggesting high interest rates are not bogging down consumers.
The economist said the concern isn’t just that interest rates are taking a long time to affect the economy.
“It looks like there’s a resurgence in some of this data, specifically in the labour market and in the Canadian consumer,” he said.
“The Bank of Canada needs to see a turn in the economy. We cannot keep getting job growth.”
With affordability top-of-mind for many Canadians, the latest jobs report shows the gap between wage growth and inflation is narrowing. Average hourly wages were up 5.4% in February compared with a year ago while annual inflation rate was 5.9% in January.
The Bank of Canada, which is working to bring down the country’s high inflation rate, has raised concerns that sustained 4% to 5% wage growth will make it harder to return to its 2% inflation target.
But the central bank says it expects the labour market to ease in the coming months, as higher interest rates slow spending by people and businesses.
At its latest interest rate announcement, the Bank of Canada held its key rate steady at 4.5%, the highest it’s been since 2007.
Though high interest rates have already taken a toll, the full effect is still ahead, as economists estimate it can take up to two years for rate hikes to be digested by the economy.