Canada's economy added 104,000 jobs in December, blowing well past expectations

Canada's economy added 104,000 jobs in December as the unemployment rate fell slightly to 5.0 per cent, Statistics Canada said Friday. But the gain wasn't reflected in working hours, and a hot labour market could mean another rate hike from the central bank in January.

'It was an absolutely massive surprise,' says Desjardins economist

A man and a woman walk by a sign that says 'hiring waiter.'
A 'now hiring' sign is photographed in the window of a Toronto business on April 11, 2022. (Alex Lupul/CBC)

The Canadian labour market ended the year on a strong note as the economy added a whopping 104,000 jobs in December, showing no signs of the slowdown many economists have been anticipating.

Statistics Canada reported Friday that the unemployment rate fell slightly to 5.0 per cent last month. This marks the third decline in the unemployment rate in fourth months, edging it closer to the record low of 4.9 per cent reached in June and July.

In its latest labour force survey, the federal agency says the rise in employment was driven by an increase in full-time work.

Many economists have been expecting a downturn in the economy to show up in fourth quarter economic data in response to high interest rates. However, the job numbers show no sign of an economy slipping.

"It was an absolutely massive surprise," Royce Mendes, managing director and head of macro strategy at Desjardins, told CBC News. The number was over 20 times more than the 5,000 jobs that economists had forecast, he said.

"I have called this release the random number generator in the past for good reason."

The number of employees in the private sector increased last month, with job gains made across industries. 

Meanwhile, employment in the public sector held steady.

Jobs gained but economic inefficiency remains

The construction industry made notable gains last month, with job numbers rising by 2.3 per cent, up from a previous decrease.

Jobs in the transportation and warehousing sector increased by 3.0 per cent, reversing losses suffered in September and marking its first notable gain since November 2021, the report said.

Construction workers are pictured on a site with orange pylons lining the road.
Construction workers are pictured at Eglinton West subway station in Toronto on Dec. 8, 2022. Construction jobs rose by 2.3 per cent in December after a decrease the previous month. (Michael Wilson/CBC)

The number of jobs in the professional, scientific and technical services industry rose by 1.3 per cent, continuing an upward trend that began during the summer of 2020.

But December's employment gain wasn't reflected in working hours. The lull in economic activity can be attributed to an increase in staff absenteeism from illness, or workers taking leave to care for their children, Mendes said.

Statistics Canada reported 8.1 per cent of employees were absent due to illness or disability last month, up from 6.8 per cent in November.

"So it meant that, yes, a lot more Canadians had jobs, but there wasn't a lot more goods and services being produced," Mendes said. 

"I think we're gonna have to live with these inefficiencies in the economy for some time."

Wages still lagging behind inflation rate

Wages continued to grow at a year-over-year pace above 5.0 per cent for the seventh consecutive month, with wages up 5.1 per cent.

That growth, however, still lags behind the country's inflation rate, which was 6.8 per cent in November.

"You've got to pay what's right to get good employees," said Phil Stinner, the owner of Sewer Squad Plumbing in Pickering, Ont.

"But I don't want to compromise the quality of work that somebody gets. So we're gonna pay what's right, and of course, that's gonna affect cost as well."

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Stinner readjusts his pricing every month based on whether material costs are up or down — but these days, they only go up, he says. Employees are asking for more money, too.

"But that's across the board. Everyone's paying more. I mean, in terms of trying to hire people, every business is increasing their hourly rate and their compensation to try and attract more people."

Strong reading could mean another rate hike

Brendon Bernard, a senior economist with hiring website Indeed, said the broad story for 2022 "of low unemployment and solid job market conditions continued through the final parts of the year."

Employment among youth aged 15 to 24 rose in December, fully recouping job losses experienced between July and September.

The jobs report also noted that the employment rate among women between the ages of 25 and 54 reached a record-high last month.

A woman, seen from behind, stands in front of abundant supply of vegetables.
A customer surveys the fresh produce at a vegetable stall at Montreal's Jean-Talon market. Wage growth is still lagging behind inflation, Statistics Canada's Labour Force Survey shows. (Ivanoh Demers/Radio-Canada)

The Bank of Canada has previously flagged the country's tight labour market as a contributor to high inflation.

The central bank has raised interest rates aggressively in hopes of bringing down the pace of price growth and cooling the economy.

While economists expect unemployment to rise in response to higher borrowing costs, the labour market has remained resilient over recent months.

The Bank of Canada signalled last month a willingness to press pause on its aggressive rate hike cycle, depending on how the economy evolves.

"The central bank is going to look at this and see 100,000 jobs were created and think to themselves that rates need to be higher," Mendes said. 

"So I think we should be bracing ourselves for another 25 basis point rate hike at the end of this month."

With files from Shawn Benjamin and Anis Robert Heydari

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