As the Bank of Canada takes a pause from raising interest rates to assess the effects of higher borrowing costs on the economy, economists will be paying close attention to how the labour market is affected.
On Wednesday, the central bank raised its key interest rate for the eighth consecutive time and said it was taking a conditional pause, keeping the door open to further rate hikes if inflation isn’t tamed.
The Bank of Canada intends to slow down the economy by keeping interest rates high for some time. One of the consequences of that slowdown will likely be some loosening in the labour market.
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However, up until now, the Canadian labour market has kept its steam.
“I think it’s surprised both below market expectations and also the Bank of Canada’s expectations,” said BMO economist Shelley Kaushik.
In December, the unemployment rate was five per cent, just above the all-time low of 4.9 per cent reached in the summer.
In its latest monetary policy report, the Bank of Canada said it expects the full effects of rate hikes on the labour market to play out over a longer period.
As businesses and consumers pull back on spending, economists expect unemployment to rise, though by how much is up for debate.
Labour groups have voiced concerns about the Bank of Canada’s rate hikes in recent months, with Unifor president Lana Payne previously accusing the central bank of waging war on the working class.
But some economists are cautiously optimistic that employment may prove to be somewhat resilient to the slowdown, given that unemployment is currently near historical lows.
“The hope is that as businesses start to see that slower demand, that they will start to pull those job vacancies before they start firing workers,” said Kaushik.
Job vacancies reached record highs last year, with over one million jobs unfilled in the economy.
Since then, the number of unfilled positions have fallen to around 850,000 vacancies in November.
On Thursday, Statistics Canada reported the number of job vacancies fell by 2.4 per cent in November to their lowest level since August 2021.