Canada’s economy added nearly four times the number of jobs forecasted for December and reached its highest number in almost two years, shrinking bets for a rate cut later this month though one is still expected by the majority of economists.
The economy added a net 90,900 jobs last month, with almost two-thirds coming from full-time work, Statistics Canada said on Friday. The job gains for the third time in the past four months were spread across several industries, the agency said.
The unemployment rate, or the share of the labor force which is unemployed, surprisingly ticked down to 6.7%.
Analysts polled by Reuters had forecast a net gain of 25,000 jobs and that the unemployment rate would rise to 6.9% from the near eight year high of 6.8% in November.
Bets for a 25 basis point rate cut on Jan. 29, when the Bank of Canada announces its first rates decision of the year, shrunk to 61% from 70% as the robust jobs report eased the pressure on the central bank to reduce borrowing costs.
The Canadian dollar pared losses after the data and was trading down 0.02% to 1.4398 to the U.S. dollar, or 69.45 U.S. cents.
Economists, however, still expect a rate cut this month as a higher unemployment rate and the threat of tariffs from the U.S. point towards weakening economic growth.
“Today’s report is clearly better than anticipated, although the unemployment rate is still elevated and indicative of slack within the economy, and we still see the need for further interest rate cuts to fully reduce that excess capacity,” said Andrew Grantham, senior economist with CIBC Capital Markets.
Canada’s employment rate, or the proportion 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, mostly in manufacturing. The services sector gained a net 68,400 jobs, led by educational services and transportation and warehousing.
Trump Tariff Threat
Canada’s economic growth prospects have in recent months been clouded by the threat of tariffs from incoming U.S. President Donald Trump.
On Friday, the statistics agency noted that 8.8% of Canadian workers, or around 1.8 million people, in 2024 worked in industries that were dependent on U.S. demand for Canadian exports.
Industries with the highest proportion of employment dependent on US demand included oil and gas extraction (74.3%), pipeline transportation (71.7%), primary metal manufacturing (60.8%) and transportation equipment manufacturing (56.0%), Statscan said.
“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 rates outlook remains intact,” Royce Mendes, head of macro strategy for Desjardins Group wrote in a note.
The central bank slashed its key policy rate by 50 basis points last month to help address soft economic growth, bringing the cumulative lowering of the borrowing rate to 175 bps since June.
The bank, however, did indicate further rate cuts would be more gradual.
The average hourly wage growth for permanent employees 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.
(Reporting by Ismail Shakil and Promit Mukherjee in Ottawa; Additional reporting by Dale Smith, Fergal Smith and Divya Rajagopal; Editing by Tomasz Janowski and Nick Zieminski)
