Canada's Jobless Rate Falls in December to Four-Decade Low -- 2nd Update

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Canada's unemployment rate dropped to a four-decade low in December and job creation exceeded expectations by a wide margin for a second straight month, likely increasing pressure on the Bank of Canada to raise interest rates in early 2018.

The Canadian economy added a net 78,600 jobs in December on a seasonally adjusted basis, Statistics Canada said Friday, which nearly matched the previous month's employment gain of 79,500. This marked the best two-month performance in Canada's labor market since April 2012.

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Market expectations were for a meager increase in employment of 2,000, according to economists at Royal Bank of Canada.

Canada's jobless rate, meanwhile, reached a fresh low of 5.7%, down from 5.9% in November. The data agency said December's unemployment rate is the lowest since it began collecting comparable data back in 1976. When using U.S. Labor Department methodology, Canada's jobless rate in December was 4.7%.

Market expectations were for Canada's jobless rate to tick upward from November to 6%.

The December report also suggests 2017 was the best year for Canadian job growth since 2002. Overall, employment in Canada rose 2.3%, or 423,000, in 2017, or average job growth of 35,000 a month. Over 90% of the new jobs added in 2017 were of the full-time variety.

The U.S. also issued its employment data for December. The Bureau of Labor Statistics said nonfarm payrolls climbed 148,000 and the U.S. jobless rate held steady at a 17-year-low of 4.1%.

December's labor report is the first major Canadian economic indicator to emerge in 2018. The last piece of data for 2017 indicated economic output stalled in October, and with it curbing expectations of an interest-rate increase from the Bank of Canada this month.

Those expectations are now likely on the upswing after Canada's blockbuster employment report in December. Besides more encouraging employment data, merchandise trade figures also released Friday indicated underlying strength in the domestic economy. Imports rose 5.8% in November from the previous month, or the biggest increase in over eight years. Exports also rose by a hefty 3.7%, although the advance on a price-adjusted, or volume, basis was much lower.

Even with the economy recording strong job gains and a low unemployment rate through 2017, Bank of Canada Governor Stephen Poloz has been steadfast that spare capacity remains in the labor market. In a speech last month, Mr. Poloz said he was willing to keep rate policy "quite stimulative" and let upside inflation risks build until there is evidence spare capacity in the labor market has evaporated.

Canada's central bank issues its next interest-rate decision on Jan. 17. Expectations among traders, based on pricing in the overnight-index swap market, is for one rate rise in the first quarter.

Among the factors Mr. Poloz has said bank officials will be watching is wage growth. In December, wages increased on a one-year basis by 2.7%, marking the fourth straight month of increases greater than 2%. Like the U.S., Canada has recorded meager wage growth in recent years. Last month, Mr. Poloz said there were some encouraging signs on wages, "but it will take awhile" before it becomes a trend.

The December jobs report said part-time employment rose by nearly 55,000, whereas full-time positions increased 23,700. On a sectoral basis, the private sector added 28,300 jobs and the public sector hired 22,100 employees. The ranks of the self-employed -- who generally are independent contractors or freelancers -- swelled by 28,200.

Write to Paul Vieira at paul.vieira@wsj.com

OTTAWA -- Canada's unemployment rate dropped to a four-decade low in December and job creation exceeded expectations by a wide margin for a second straight month, likely increasing pressure on the Bank of Canada to raise interest rates in early 2018.

The Canadian economy added a net 78,600 jobs in December on a seasonally adjusted basis, Statistics Canada said Friday, which nearly matched the previous month's employment gain of 79,500. This marked the best two-month performance in Canada's labor market since April 2012.

Market expectations were for a meager increase in employment of 2,000, according to economists at Royal Bank of Canada.

Canada's jobless rate, meanwhile, reached a fresh low of 5.7%, down from 5.9% in November. The data agency said December's unemployment rate is the lowest since it began collecting comparable data back in 1976. When using U.S. Labor Department methodology, Canada's jobless rate in December was 4.7%.

Market expectations were for Canada's jobless rate to tick upward from November to 6%.

"Canadian employment continued to defy gravity," said Josh Nye, economist at Royal Bank of Canada. He added strength in job creation, along with a recent pickup in inflation, "further increase the odds that the Bank of Canada raises rates" later this month at its next scheduled meeting Jan. 17.

The Canadian dollar advanced by nearly a cent against the U.S. dollar in trading immediately after the release of the employment report. Investors on Friday also raised the probability of a January rate rise to 70%, based on trading in the overnight-index swap market, from the 40% range Thursday, according to TD Bank economist Brian DePratto.

The December report also suggests 2017 was the best year for Canadian job growth since 2002. Overall, employment in Canada rose 2.3%, or 423,000, in 2017, or average job growth of 35,000 a month. Over 90% of the new jobs added in 2017 were of the full-time variety.

The U.S. also issued its employment data for December. The Bureau of Labor Statistics said nonfarm payrolls climbed 148,000 and the U.S. jobless rate held steady at a 17-year-low of 4.1%.

December's labor report is the first major Canadian economic indicator to emerge in 2018. The last piece of data for 2017 indicated economic output stalled in October, and with it curbing expectations of an interest-rate increase from the Bank of Canada this month.

Those expectations are now likely on the upswing after Canada's blockbuster employment report in December. Besides more encouraging employment data, merchandise trade figures also released Friday indicated underlying strength in the domestic economy. Imports rose 5.8% in November from the previous month, or the biggest increase in over eight years. Exports also rose by a hefty 3.7%, although the advance on a price-adjusted, or volume, basis was much lower.

Even with the economy recording strong job gains and a low unemployment rate through 2017, Bank of Canada Governor Stephen Poloz has been steadfast that spare capacity remains in the labor market. In a speech last month, Mr. Poloz said he was willing to keep rate policy "quite stimulative" and let upside inflation risks build until there is evidence spare capacity in the labor market has evaporated.

Some economists say the central bank's outlook remains misguided.

"Hiring is surging, and there isn't much scope for the Bank of Canada to point to slack in the labor market," said Nick Exharos, economist at CIBC World Markets.

Among the factors Mr. Poloz has said bank officials will be watching is wage growth. In December, wages increased on a one-year basis by 2.7%, marking the fourth straight month of increases greater than 2%. Like the U.S., Canada has recorded meager wage growth in recent years. Last month, Mr. Poloz said there were some encouraging signs on wages, "but it will take awhile" before it becomes a trend.

The December jobs report said part-time employment rose by nearly 55,000, whereas full-time positions increased 23,700. On a sectoral basis, the private sector added 28,300 jobs and the public sector hired 22,100 employees. The ranks of the self-employed -- who generally are independent contractors or freelancers -- swelled by 28,200.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

January 05, 2018 10:29 ET (15:29 GMT)