According to recent employment reports, it is suggested that the Bank of Canada may hold off on lowering interest rates, as the job market appears to be improving. When the job market improves, naturally, interest rates will not decrease. January’s reports show that the economy has added more than 37,000 jobs, exceeding expectations and pushing the unemployment rate down to 5.7%. While the labour market may be tight, this situation could be tighter than expected, not necessarily stronger.
With inflation currently at 3.4%, a decrease in interest rates may not be possible until mid-2024. The demand for goods and services by consumers has increased, while the supply has not kept pace, resulting in higher prices. High mortgage interest rates and rising rent costs are currently the largest contributors.
Despite significant gains in the job market, there are some concerns to consider. The population grew by 0.4% in January, exceeding employment growth. Additionally, the labour market participation rate has declined for four consecutive months. There may be a lack in measuring the number of people actively seeking work or currently employed.
Interest rates have been high for a long time, and many have been hoping for rate cuts. However, based on the data and hints from the Bank of Canada, it’s unlikely to happen immediately. Rate cuts may wait longer as the labour market shows signs of strength. However, there is anticipation that rate cuts may begin, at least by June, even if they are smaller in percentage. Overall, people are hopeful to see some changes.
Key takeaways:
- The Canadian economy saw a slight increase in growth in November 2023, ending the year on a positive note.
- Migration remains strong in the labour market, with over 1 million new qualifying residents added in the previous year.
- Wage growth has increased by over 5% year on year, particularly for women and high-income professionals.
- While the data remains positive, economists predict rising unemployment throughout 2024.