OTTAWA, March 10 (Reuters) – The Canadian economy beat expectations by adding 21,800 jobs in February, putting pressure on the central bank to consider another interest rate hike after saying it wanted to end its year-long tightening campaign, data showed on Friday .
Analysts polled by Reuters had forecast a net gain of 10,000 jobs after January’s huge increase of 150,000. The unemployment rate held steady at 5.0% in February, while economists had predicted it would rise to 5.1%.
The average hourly wage for permanent employees rose 5.4% in February on an annual basis, compared to 4.5% in January.
“Evidence is accumulating that the labor market is not following the Bank of Canada’s plan for the economy,” said Royce Mendes, head of macro strategy at Desjardins, citing the acceleration in wage growth in particular.
“Markets will continue to price in high odds of another rate hike from the Bank of Canada after seeing these numbers.”
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Money markets see about a 65% chance the Bank of Canada will raise interest rates further this year, down from 80% before the data. The move lower comes as US wage inflation showed signs of cooling and hints of stress in the US banking system fueled demand for safe-haven assets.
The Bank of Canada left its main overnight rate on hold on Wednesday, becoming the first major central bank to hit the pause button on rate hikes that began when inflation rose last year.
On Thursday, the BoC said it is watching economic data to assess whether it can leave its main overnight rate at 4.50% or whether it needs to go up.
The BoC has said it will hold interest rates as long as inflation falls in line with its January forecast. But Senior Deputy Governor Carolyn Rogers said Thursday that the economy remained in excessive demand, citing an “incredibly tight” labor market.
“There is simply no sign that the labor market is succumbing to the rapid tightening of the past year,” said Doug Porter, chief economist at BMO Capital Markets.
“If there is any disappointment in the inflation figures in the coming months, the bank will almost certainly raise interest rates again.”
Inflation fell to 5.9% in January from a peak of 8.1% last year, and the central bank predicts it will ease to 3% around the middle of the year.
February’s job gains were led by industries including health care and social assistance and public administration, while fewer people worked in business, construction and support services, Statscan said.
The services sector added a net 4,200 jobs, helped by gains in health care and public administration, while employment in the goods sector rose by a net 17,500 jobs, led by the utilities and manufacturing sectors.
The total number of hours worked rose 0.6% in February and was up 1.4% from a year earlier.
The Canadian dollar traded 0.2% higher at 1.3795 to the dollar, or 72.49 US cents, after earlier hitting a near five-month low of 1.3861.
Reporting by Ismail Shakil and Dale Smith in Ottawa; Additional reporting by Fergal Smith in Toronto; Editing by Jason Neely, John Stonestreet and Andrea Ricci
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