Construction activity now a crucial engine of the economy, jobs market
A surge in construction hiring led to bigger-than-expected employment gains last month in Canada, keeping the unemployment rate at the lowest in four decades.
Statistics Canada reported late last week that Canada added 32,300 jobs in March. Construction added 18,300 jobs last month, the biggest monthly gain for the industry since February 2016, fueled by much stronger new home construction this year than most economists have been expecting.
The unemployment rate stood unchanged at 5.8%, matching the lowest in records back to 1976. Annual wage gains averaged 3.2% in the first three months of 2018, the strongest quarterly pace since 2015.
The numbers are consistent with a tightening labor market and shrinking levels of slack after Canada’s strong economic performance last year prompted a hiring boom. Economists estimate “normal” employment gains for Canada’s economy – those that keep wage pressures at sustainable levels – in the vicinity of about 15,000 to 20,000. Gains last year were almost double that pace.
“Overall, the labor market is still showing signs of resilience, despite uncertainty around trade and tougher housing regulations,” Capital Economics senior economist David Madani wrote in a note to investors, as quoted by Bloomberg.
How quickly the economy expands without triggering inflation is a key question for the Bank of Canada. Even with last year’s surge in hiring and wages gaining, the central bank has said pockets of untapped labor market slack remain that could limit wage and price pressures.
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Wages have been showing some signs of strength in recent months. Annual pay increases accelerated to 3.3% in March from 3.1% in February. Wage gains for permanent workers were unchanged in March from February at 3.1%, but have been up on average in the first quarter.
The fact that the jobless rate didn’t fall further and the wage gains for permanent workers didn’t accelerate will likely prevent any rate increases in coming months from the Bank of Canada, predicted Avery Shenfeld, chief economist at CIBC World Markets. The central bank, which has raised interest rates three times since July, is expected to hike twice more this year.
“The absence of any acceleration in wages or drop in the jobless rate should be enough to keep the Bank of Canada on hold for now, particularly given only muted GDP growth in the most recent two months of data,” Shenfeld told investors in a note.
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