Canada’s labor market posted stronger-than-expected gains for the second consecutive month in January, with solid employment growth and an unexpected decline in the unemployment rate, according to RBC Economics’ Assistant Chief Economist Claire Fan.
Labour Market Resilience, but Uncertainty Remains
While the unemployment rate is nearly one percentage point higher than a year ago, Fan suggested it may be nearing its peak sooner than anticipated. Wage growth, however, has slowed to its lowest year-over-year rate since May 2022, signaling potential weaknesses.
Impact on Bank of Canada’s Rate Decisions
The Bank of Canada (BoC) previously indicated that future rate cuts would depend on continued signs of economic weakness. January’s strong labor market data could reduce the urgency for another rate cut in March.
Broader Economic Risks
- Interest rates remain relatively high, despite a soft economic backdrop.
- Household spending is showing signs of recovery, but business investment remains sluggish.
- Potential U.S. tariffs could pose additional risks ahead of the BoC’s March policy meeting.
- Upcoming labor market and inflation reports will be critical in shaping the central bank’s next move.
With key economic data still pending, uncertainty lingers over the BoC’s next policy steps.
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