Canadian and U.S. job market reports for December on Friday will mark the first major data releases of the year ahead of interest rate decisions later in the month for both the Bank of Canada and the U.S. Federal Reserve.
Canada’s labour market likely continued to underperform a resilient U.S. one. We look for the Canadian unemployment rate to edge up to 6.9% in December from 6.8% in November. Ahead of the December print, the unemployment rate has risen by 1 percentage point in one year (and 2 percentage points from cycle lows). We expect Canada added 10,000 jobs in December despite a rising unemployment rate. This has broadly been a story of the pace of job creation (329,000 over the last year) not keeping up with labour market growth (605,000 participants).
The lagged impact of earlier and more aggressive interest rate cuts from the BoC in 2024 compared to other parts of the world is expected to help stabilize the labour market early in 2025, and slower population growth will limit labour force increases. But for now, lower hiring demand means the unemployment rate is not likely at its peak yet. Wage growth has been resilient, but is expected to slow as job openings fall amid higher unemployment.
In the U.S., on the other hand, we’ve seen a more muted deterioration in the jobs market. The unemployment rate has risen by 0.5 percentage points over the past year, and by 0.8 percentage points from its lowest point in the cycle. But, it is still low by historical standards, and consistent with a labour market normalizing rather than faltering. We look for payroll employment to rise by 195,000 in December—above the 173,000 average over the previous three months, and for the unemployment rate to hold steady at 4.2%. Job openings have continued to decline, and the share of unemployment coming from layoffs has continued to gradually increase. But, we continue to expect labour markets to remain resilient in 2025, in a big part thanks to the positive impacts of an unusually large government budget deficit for this point in the economic cycle.
We continue to expect both the BoC and the Fed will cut interest rates by 25 basis points later this month, but the Fed will pause after that reduction, while the BoC continues cutting into mid-year to address an underperforming Canadian economy.
Week ahead data watch
