Ismail Shakil and Promit Mukherjee
OTTAWA (Reuters) – Canada’s economy added nearly four times as many jobs as forecast in December to the biggest number in nearly two years, reducing bets on a rate cut later this month, although most economists still expect it.
The economy added a net 90,900 jobs last month, nearly two-thirds of which came from full-time jobs, Statistics Canada said Friday. The increase in jobs for the third time in the past four months was spread across several industries, the agency said.
The unemployment rate, or the share of the workforce that is unemployed, surprisingly dropped to 6.7 percent.
Analysts polled by Reuters had forecast a net gain of 25,000 jobs and that the jobless rate would rise to 6.9% from a near eight-year high of 6.8% in November.
Bets on a 25 basis point rate cut on Jan. 29, when the Bank of Canada announces its first interest rate decision of the year, eased to 61% from 70% as a strong jobs report reduced pressure on the central bank to cut borrowing costs.
The Canadian dollar pared losses after the data and traded up 0.02% at 1.4398 per US dollar, or 69.45 US cents.
Economists, however, still expect a rate cut this month as higher unemployment and the threat of tariffs from the US point to weakening economic growth.
“Today’s report is clearly better than expected, although the unemployment rate is still high and points to a slowdown in the economy, and we still see the need for further interest rate cuts to fully reduce this excess capacity,” said Andrew Grantham, senior economist from CIBC (TSX:) Capital Markets.
Canada’s employment rate, or the share of the population that is employed, increased for the first time since January 2023.
Employment in the goods sector increased by a net 22,500 jobs, mainly in production. The services sector gained a net 68,400 jobs, led by educational services and transportation and storage.
TRUMP’S THREAT WITH TARIFFS
Canada’s economic growth outlook has been clouded in recent months by the threat of tariffs by U.S. President-elect Donald Trump.
On Friday, the statistics agency noted that 8.8% of Canadian workers, or about 1.8 million people, in 2024 worked in industries that depended on American demand for Canadian exports.
Industries with the largest share of demand-driven employment in the US include oil and gas extraction (74.3%), pipeline transportation (71.7%), primary metal production (60.8%), and transportation equipment manufacturing (56, 0%), Statscan announced.
“With more aggressive tariff threats weighing on business confidence and the recent rise in global bond yields tightening domestic financial conditions since the last policy decision, our rate outlook remains unchanged,” wrote Royce Mendes, head of macro strategy for Desjardins Group.
The central bank cut its key interest rate by 50 basis points last month to help address sluggish economic growth, bringing the cumulative cut in the borrowing rate to 175 bps since June.
The bank, however, announced that further interest rate cuts will be more gradual.
Growth in average hourly wages for full-time workers slowed to an annual rate of 3.7% from 3.9% in November, Statistics Canada said. The closely watched wage growth rate was the slowest since April 2022.
