Labour market gains 41K jobs in Canada, supports Bank of Canada holding rates for longer

Canada’s labour market added a net 40,700 jobs in February and the unemployment rate edged up to 5.8 per cent, according to Statistics Canada.

While the gain was more than the addition of 20,000 jobs economists expected, Canada's surging population growth has outpaced the increase in employment, resulting in a rise in the unemployment rate. Statistics Canada noted that the unemployment rate has "held relatively steady in recent months," staying at 5.8 per cent in three of the past four months.

February's increase in jobs was driven by a rise in full-time work, with 70,600 jobs added, while part-time employment fell by 29,900.

Economists say the better-than-expected data affirm that the Bank of Canada will keep to the sidelines when it comes to loosening monetary policy.

"The Bank of Canada has made it clear that it is not ready to cut rates yet. Today's labour market report won't sway this stance," TD senior economist James Orlando wrote in a research note.

"While the job market has held in okay in spite of Canada's meager pace of growth over the last year, the path of inflation is the deciding factor. And to date, the central bank believes it hasn't seen enough evidence to move off the sidelines, although the slight easing in wage pressures may help."

This week, the Bank of Canada opted to hold its benchmark interest rate at 5 per cent for the fifth consecutive time, with Governor Tiff Macklem saying "it's still too early" to consider cutting rates. However, Macklem noted in a statement on Wednesday that the labour market in Canada was "coming into better balance" and that the central bank would be looking for further evidence that wage growth is moderating.

Wage growth did show signs of cooling in February, as average hourly wages of permanent employees increased 4.9 per cent year-over-year, following a 5.3 per cent increase in January. It was the second consecutive month of wage deceleration and the lowest rate since June.

"The Canadian labour market continues to loosen, albeit at a snail's pace that isn't going to speed up the timeline for Bank of Canada interest rate cuts," CIBC economist Andrew Grantham wrote in a note on Friday.

"The surge in the population continues to flatter the Canadian jobs figures, and there is evidence from a further decline in the employment ratio and increase in long-term unemployment that labour market conditions are continuing to weaken. However, this is happening only gradually and not in a way that demands an imminent reduction in interest rates."

Job gains were spread across the services-producing sector, led by accommodation and food services (+26,000) and professional, scientific, and technical services (+18,000). The increase offset declines in education services (-17,000), manufacturing (-14,000), business, building, and other support services (-13,000), and agriculture (-6,000).

In January, the labour market blew past economist expectations, adding a net 37,300 jobs due to an increase in part-time work. The unemployment rate fell slightly in January to 5.7 per cent.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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