Strong job growth may signal interest rate hikes

January 16, 2023



Strong and growing job creation in Canada is not all good news, a mortgage broker warns, because it may lead to fears of inflation and further hikes in lending rates by the Bank of Canada (BOC).
“The Labour Force Survey for December was much stronger than expected, raising the odds of a 25 basis points (bps) increase in the policy rate by the Bank of Canada on January 25th,” said Dominion Lending Centres chief economist Sherry Cooper. “While the Bank has hiked rates by 400 bps to 4.25 per cent, core inflation remains sticky, wages have risen more than 5 per cent for the seventh consecutive month to December 2022, and fourth-quarter (2022) GDP was running well above the Bank's forecast of 0.5 per cent.”
Nationally, employment rose by 104,000 in December, and the unemployment rate fell to 5 per cent just above the 50-year low of 4.9 per cent posted in June and July, Cooper noted.
Employment rose the most for youth and people aged 55 and older. 
Bank of Canada Governor Tiff Macklem and his officials have slowed down the rate hikes (from 75 bps to 50 bps) and signalled future decisions would depend on economic data. The economy is on track to expand at an annualized rate of 1.2 per cent in the fourth quarter—exceeding BOC's expectations. 
The December Consumer Price Index, or CPI, report will be released on January 17, ahead of the January 25 rate decision.
Rate hikes by BOC have had an effect on housing since the first increase in March 2022: Buyers moved to the sidelines as year-to-year home sales plummeted in Canada’s largest metro areas by 30 per cent to 50 per cent as of December 2022.