Canada’s unexpectedly robust December jobs report is raising questions about the likelihood of another interest rate cut by the Bank of Canada later this month. The country added 91,000 jobs in December, pushing the unemployment rate down to 6.7% from 6.8% in November, according to Statistics Canada.
Labour Market Surprises Economists
Economists had anticipated a slight rise in unemployment to 6.9%, but the surge in job creation, led by educational services and transportation sectors, surpassed expectations. Full-time employment saw significant growth, with the public sector alone adding 40,000 jobs. The employment rate also increased to 60.8%, marking its first rise in nearly a year.
CIBC senior economist Andrew Grantham described the labour market’s performance as ending the year “with a bang.” While job growth has struggled to keep pace with population expansion in recent years, December’s data hinted at a shift as population growth slowed.
Interest Rate Cut Uncertainty
The strong jobs data has cast doubt on the Bank of Canada’s next move. The central bank cut interest rates five times last year to stimulate a slowing economy, reducing its policy rate by 1.75 percentage points since June. However, the December report has reduced the odds of a rate cut on January 29 to 61% from 70%, according to Reuters.
Doug Porter, chief economist at BMO, noted that the robust jobs data “will prompt some meaningful doubt” about another rate cut this month. Bank of Canada Governor Tiff Macklem has also signaled that any future easing in 2025 would occur at a “more gradual” pace.
Wage Growth and Inflation in Focus
Annual wage growth slowed to 3.8% in December, down from 4.1% in November and 4.8% in October. While easing inflation remains a priority, the Bank of Canada has previously flagged high wage growth relative to productivity as a potential inflationary risk.
Economists remain divided. CIBC predicts a 25-basis-point cut this month, with additional easing throughout 2025. However, others suggest the strong labour market may slow the pace of future cuts.
External Risks Cloud Economic Outlook
Canada’s economic prospects are also being shaped by external factors. U.S. President-elect Donald Trump’s proposed tariffs on Canadian imports could pose significant risks, particularly to industries heavily reliant on U.S. demand, such as oil and gas (74.3%), pipeline transportation (71.7%), and primary metal manufacturing (60.8%).
Meanwhile, the U.S. economy also reported stronger-than-expected job growth in December, with 256,000 new jobs added and unemployment dropping to 4.1%. These developments reinforce expectations that the Federal Reserve will hold its interest rates steady, contrasting with Canada’s more uncertain outlook.
Conclusion
While the Bank of Canada has been on an easing trajectory, the unexpected strength of the December jobs report has introduced uncertainty. The central bank’s decision later this month will hinge on whether additional data supports a sustained recovery or suggests the need for further stimulus.
