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The Canadian labour market added 37.3k positions in January, with full-time employment down 11.6k and part-time employment up 48.9k.

The unemployment rate declined 0.1 percentage point to 5.7%, helped by a 0.1 percentage point to decline in the labour force participation rate to 65.3%. Despite a massive 126k increase in the population in January, only 18k net-new people entered the labour force, taking participation lower.

Employment by sector showed gains in wholesale/retail trade (+31k) and finance, insurance, real estate, rental and leasing (+28k). There was a notable decline in accommodation and food services (-30k).

Lastly, total hours worked rose 0.6% month-on-month and wages were down 5.3% year-on-year (from 5.7% on December).

Key Implications

The headlines for today’s job report suggested surprising strength from the Canadian labour market. However, while falling unemployment is a good sign for the strength of the job market, the underlying details were weak. All the job gains were part-time, with the vast majority coming from cyclically insensitive public sector hiring. This along with the regular seasonality issue with January job reports (remember the head fake we got last January?), we’d argue that it is not the type of report the makes us think the Canadian labour market is in for a renewed upturn. Case in point, the lower unemployment rate was helped by weaker participation – not a typical sign of a strong labour market.

The Bank of Canada won’t change course after today’s report. The data are simply too volatile and don’t paint a clear picture of the state of the Canadian economy. This leaves the BoC to continue fixating on the state of inflation. With headline and core inflation rates stuck around the mid-3% level, the Bank needs to see improvement before it can be convinced that it will reach its goal of price stability. This has markets pushing back on the timing of rate cuts, with June or July as the most likely start date.

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