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December’s blockbuster jobs report points to continued strength in the labour market, and indicates the Bank of Canada will likely hike interest rates again when policymakers meet later this month, economists said.

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Canada added 104,000 jobs in the month of December, Statistics Canada reported Jan. 6, blowing past analyst expectations of a modest 5,000 additional positions and pushing the unemployment rate down to five per cent from 5.1 per cent.

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“The rise was supported by a 90,000 rise in the labour force, mainly among younger people,” Stephen Brown, Canada economist at Capital Economics, said in a note.

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The rest of the gains were among Canadians aged 55 and older, RBC Economics’ Carrie Freestone noted in a quick hit analysis.

Those gains were comprised of mostly full-time positions across sectors including construction, which added 35,000 jobs; transportation and warehousing, 29,000 jobs; information, culture and recreation, 25,000 jobs; and professional service, 23,000 jobs. Positions declined in educational services, wholesale and retail trade, and in the health care sector, which alone lost 17,000 positions. Manufacturing lost 8,000 jobs. Meanwhile, employment in the hospitality sector remains 10-per-cent below its pre-pandemic level, Freestone said.

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Average hourly wages fell to 5.1 per cent in December from 5.6 per cent in November, an encouraging data point for the Bank of Canada as it seeks to cool inflation, Brown said.

Other areas of strength noted by economists included the increase in the participation rate from 64.8 per cent to 65 per cent.

The Bank of Canada increased interest rates by 400 basis points last year, bringing them to 4.25 per cent from 0.25 per cent in March. Markets have priced in one more rate hike in January, with cuts expected at the end of 2023.

Here’s what economists have to say about the latest jobs report and what it means for the Bank of Canada and interest rates:

Stephen Brown, Capital Economics

We still think the bank will drop down to a 25-basis-point hike later this month, but the resilience of the labour market presents a clear risk to our view that the bank will pause after that. At the very least, it seems likely that the bank will accompany its next policy decision with guidance suggesting that markets have now gone too far in pricing in interest rate cuts for later this year and beyond.

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Dougles Porter, BMO Economics

While it’s always dangerous to read too much into a single Canadian jobs report, it’s safe to conclude that the economy still had some serious zip at the end of last year. True, the labour market is typically the last to turn when conditions soften broadly, but there is precisely zero hint of any such softening in the jobs data.

At the very least, today’s robust results support the view that the Bank of Canada will hike rates again later this month. We are calling for a 25-basis-point rise to 4.5 per cent and then a move to the sidelines to reassess. Suffice it to say that with wages still running around five per cent and the jobless rate holding at five per cent, the risk is heavily tilted to the need for the bank to ultimately do even more to quell underlying inflation pressures.

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Carrie Freestone, RBC Economics

Labour markets are still exceptionally tight. Close to six per cent of Canadian jobs are vacant, but the number of available unemployed workers available is very low. The lagged impact of 400 basis points of Bank of Canada interest rate hikes in 2022 will slow hiring demand in 2023 and begin to push unemployment higher — although the current excess of job openings and the shortage of workers will limit near-term layoffs. The Bank of Canada is likely still close to the end of the current rate hiking cycle, although very strong labour market momentum to end 2022 increases the odds that the Bank of Canada will press ahead with another rate hike later this month.

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Charles St-Arnaud, Alberta Central

A robust labour market is a challenge for the Bank of Canada. As we have explained on numerous occasions, the BoC needs to slow growth and create some excess capacity in the economy to fight inflation. This will likely lead to a rise in the unemployment rate and to job losses. With this in mind, some weakening of the labour market would be a welcomed outcome for the BoC.

The continued resilience of the labour market is likely to tilt the BoC in favour of tightening monetary policy by 25 basis points at the Jan. 25 meeting. However, whether the BoC hikes further will likely depend on inflation, with the next release on Jan. 17. Nevertheless, it may require some strong signs of moderation in underlying inflationary pressures for the BoC to keep rates unchanged.

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James Orlando, TD Economics

2022 was a banner year for the Canadian labour market. The economy gained 381,000 jobs, while the unemployment rate has remained right around the historical low of 4.9 per cent established in the spring. This helped wages rise by over five per cent year over year during the back half of the year, incentivizing more people to enter the workforce. Today’s impressive report speaks to this strength. The surge in employment and rise in the labour force make this an incredibly positive print. The fact that most of the gains were full-time positions in the private sector and spanned many industries further supports the robustness of today’s numbers.

Today’s report reinforced expectations that the Bank of Canada will continue hiking its policy rate at its meeting in late January. Though the Bank of Canada has signalled it could go either way with its next policy decision, the continued strength in employment means that the bank isn’t done yet.

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Andrew Grantham, CIBC Economics

The Canadian labour market remains much stronger than expected and (so far) apparently resilient to rapidly rising interest rates. While strong hiring at least partly reflects companies needing to compensate for increased staff absenteeism, the tick down in the unemployment rate close to its record low sees us now forecasting a final 25-basis-point hike from the Bank of Canada at its meeting later this month.”

Marc Desormeaux, Desjardins Economics

Another month, more volatility in Canadian jobs. December’s surge in employment, increase in participation and drop in the unemployment rate undid some of the weakness witnessed in prior months. But the results weren’t strong across the board.

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More softness in hours worked, at least partly because of worker absences due to illness, paints a picture of an economy that requires more workers to produce the same amount of goods and services. The further deceleration in permanent employee wage gains also suggests some moderation in inflationary pressures, though these remain too high for the Bank of Canada’s comfort.

The employment print does not change our tracking of real GDP growth, which is currently roughly 1.5 per cent (quarter over quarter annualized) for the fourth quarter of last year. That remains well above the Bank of Canada’s forecast in its last Monetary Policy Report.

This release does, however, tilt the odds in favour of one final 25-basis-point rate hike from the Bank of Canada later this month. Despite signs of slowing growth in other economic indicators, the apparent strength in hiring likely means the central bank’s job isn’t done just yet. In recent months, the governor has emphasized the need to rebalance the labour market if inflation is to normalize.

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