Canada's Jobs Report For January 2023 SHOCKS Economists! 10X More Jobs Than Expected!
Introduction
Last week, Canada’s jobs report for January came out, and the numbers were surprising, to say the least. With 150,000 new jobs added, the report exceeded the forecast by 10 times!
That’s a huge increase, and it’s got everyone talking about what this means for our economy and for interest rates. So, in this video, we’ll be breaking down the details of the report.
Non-Landed Immigrant Job Growth
The January jobs report showed a staggering 150,000 new jobs added. But where did this job growth come from? The big change actually comes from non-landed immigrants. While other categories actually saw a drop in employment since the summer of last year, non-landed immigrant job growth skyrocketed.
When you think about it more, this is actually in line with Canada’s population growth in Q3 of 2022, which saw the fastest population growth in over 50 years. These people are now getting jobs and contributing to the economy. It’s important to note that the job growth from this sector fell in 2020 when immigration gates shut down, so in a way, we’re now playing catch-up with this demographic.
This job gap catch-up is also happening to our US neighbours, and if we take a look at this US payrolls chart, you can see that there’s still a bit of a job gap close to 4% in the US. We don’t have this chart for Canada, but BMO tells us that this job gap is certainly also around 1% in Canada.
Seasonality & Other Revisions
The next thing I wanted to highlight is a seasonality factor that’s been stripped away, which can actually throw things off in this current market.
That 150,000 job growth number is the seasonally adjusted number, which is definitely the way to do it in a normal market. By stripping away seasonality, we usually see the real economic impact more clearly.
But we’re not in a normal year with normal seasonal trends, and so stripping away normal seasonality might not actually present the most accurate results. So just so you know, the non-seasonally adjusted job growth actually dropped by 125,000 jobs.
Keep in mind that there may be changes made after the release. For example, December numbers were revised down. Originally, the December report showed a growth of 104,000 new jobs added, but after revision, it now shows only 69,000 new jobs added—it’s still very big, but definitely not as big as the first release.
Job Sectors With Biggest Growth
Next, let’s dive into the job sectors that have seen the biggest growth. I talked about how the job growth mainly came from non-landed immigrants because our population also grew at a very fast pace. And in turn, these people also boost the need for more jobs in certain services.
It comes mainly from the private sector and full-time work, but more specifically in these associated industries: accommodation and food services, information, culture and recreation, and even construction. And now, finally, this job growth number is starting to sound more normal.
Keep Monitoring Wage Growth
I think it comes down to monitoring wage growth more closely at this point, which ends up directly correlating to the sticky service inflation that we’re experiencing. Even though the number of jobs is rising, a slower pace of wage growth can indicate a shift towards job growth in lower-wage industries and may eventually slow down service inflation, and we’re seeing early signs of this.
The BoC acknowledges that this is and will continue to be the toughest to gauge, so they’ll be closely monitoring it.
What Does A Strong Jobs Report Mean For Our Canadian Economy?
What this means is that uncertainty is still pretty high at this point, especially with the big surprises in the jobs data. One thing for sure is that it doesn’t look like we’re on the verge of a recession.
BMO, which predicted that we would enter a recession in early 2023, is now pushing their forecasts further out.They’re now forecasting “moderate growth” in GDP this quarter, a “mild contraction” in Q2 and Q3, and eventually a rebound in Q4.
But having said that, the BoC said they’re going to temporarily pause rates, and TD doesn’t think that this jobs report is going to change their mind in March. Beyond this, it’s probably a tougher call, and it will depend on where inflation and job numbers go in the coming months.
In the best case, we end up with that soft landing that the BoC is targeting. Inflation comes down more, particularly on the sticky services side, even with strong labour markets that are still playing catch-up with demand and hiring to cover for a higher number of sick days compared to pre-COVID.
In the most likely case, as predicted by the many forecasters, even if a recession comes, it might end up being later and less painful, and perhaps that’s why businesses are still hiring because they don’t think the recession will last too long.
Just keep in mind that the worst case is still possible. Because the BoC is stopping rate hikes prematurely and dragging them out, we might end up seeing a later, more severe, and prolonged inflation with much higher interest rates and more pain.
How We Can Help
Going with the most likely case now, the fact that high interest rates are likely close to the peak and will stick around for most of this year, we don’t expect demand for real estate to change drastically this year as a whole.
But if you focus on the fundamentals, the numbers still make sense with Toronto freehold purchases in today’s market, because we’re seeing very strong rental income and yes, still positive cash flows at these high rates. It might not be now, but once interest rates come down and prices start to recover, you’ll also benefit from long-term appreciation.
So if you want to learn more about these opportunities, let’s chat.
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