A cut in January, then a pause: What jobs data mean for Bank of Canada and interest rates

financialpost.com:

The Canadian economy generated 91,000 jobs in December, beating economist estimates and pushing down the unemployment rate to 6.7 per cent from 6.8 per cent the month before.

Economists had expected only 25,000 positions to be created and for the unemployment rate to rise to 6.9 per cent.

The data are seen as critical to the Bank of Canada and its next interest rate decision on Jan. 29.

Here’s what economists think the jobs numbers mean for policymakers and rates.

“Hiring moved into a higher gear in Canada during the final month of last year,” Royce Mendes, managing director and head of macro strategy at Desjardins Group, said in a note.

Besides the stronger-than-expected labour numbers, the economy also churned out a decent number of full-time positions across many sectors, he said.

Meanwhile, slowing population growth and an unchanged participation rate — the number of people working or looking for work — allowed the jobless rate to fall.

Total hours worked rose 0.5 per cent from the previous month, though Mendes attributed some of that to striking workers returning to their jobs. Average hourly wage growth slowed.

“Given the still-elevated unemployment rate and the cooler wage readings, the latest labour market data still leaves the Bank of Canada in a position to cut rates,” Mendes said.

He expects the Bank of Canada to cut in January and then pause in March.

Rates will ultimately have to come down to two per cent, he said, “with more aggressive tariff threats weighing on business confidence and the recent rise in global bond yields tightening domestic financial conditions.”

The 91,000 bump in jobs in December was the largest in two years and “supports our view that labour market conditions are strengthening,”