Key Takeaways
- December employment data is expected to be an important input for the Bank of Canada’s January policy decision.
- A modest pullback in employment would reverse part of recent gains without signalling renewed labour market deterioration.
- Job growth has been supported by part-time hiring, younger workers, and strength in non-cyclical sectors such as health care.
- Trade-exposed sectors including manufacturing, transportation, and warehousing are showing early signs of stabilization.
- Labour market trends could influence the timing of future rate hikes, though expectations remain centred on 2027.
Introduction to the Labour Market Discussion
The Bank of Canada is set to make its first interest-rate decision of the year, and the December employment report is expected to play a crucial role in informing this decision. Claire Fan, senior economist at RBC, joined BNN Bloomberg to discuss the expectations for the December jobs report and how labour market trends could influence the central bank’s policy path in 2026. According to Fan, the December employment data is expected to be an important input for the Bank of Canada’s January policy decision, and a modest pullback in employment would reverse part of recent gains without signalling renewed labour market deterioration.
Expectations for the December Jobs Report
Fan expects a 35,000 loss in employment and a tick higher in the Canadian unemployment rate to 6.8 per cent. However, this loss would still leave the jobs market quite strong relative to where it was a quarter ago. The job growth between September and November was unexpectedly strong, with 180,000 new jobs added, and Fan attributes this to increases in part-time jobs and among younger workers. Additionally, there has been strong job growth in the healthcare sector, which is not typically a cyclical segment. The stabilization in trade-exposed sectors such as manufacturing, transportation, and warehousing is also a positive sign, with these sectors accounting for over 50,000 of the 180,000 gain over the past three months.
Stabilization in Trade-Exposed Sectors
The stabilization in trade-exposed sectors is a significant development, as these sectors have been affected by global economic trends. Fan notes that job reports and hiring demand indicated by job postings data have started to come back, and Canadian consumers have been behaving resiliently towards the end of 2025. The surge in consumer spending around the holiday discounting periods and the positive impact of idiosyncratic events such as the Blue Jays postseason run are also contributing to cautious optimism for the economic backdrop in 2026. Furthermore, the stabilization in trade-exposed sectors suggests that the Canadian economy is adapting to the changing global landscape, which could have a positive impact on the labour market.
Labour Market Trends and Rate Hikes
The labour market trends could influence the timing of future rate hikes, although expectations remain centred on 2027. Fan notes that if the December job report comes in stronger than expected, with a fourth consecutive strong job gain, the implications would be more meaningful for the Bank of Canada. This could suggest that labour market improvement is happening faster than expected and could pull forward discussions around rate hikes into 2026. On the other hand, downside risks from weaker-than-expected numbers would likely be less meaningful from the Bank of Canada’s perspective. The Bank of Canada’s decision to raise interest rates will depend on various factors, including the labour market, inflation, and economic growth.
Unemployment Rate Projections
Fan expects the unemployment rate to gradually move lower to 6.3 per cent by the end of 2026, which is in line with the Bank of Canada’s expectations. The central bank does not forecast the unemployment rate itself, but it sees labour market indicators as a very important input into its decisions. The Bank of Canada’s communication on recent improvements in labour markets, alongside softer hiring demand going forward, suggests that it is closely monitoring the labour market and will adjust its policy accordingly. The projected decrease in the unemployment rate is a positive sign for the labour market and suggests that the economy is on track for a gradual recovery.
Conclusion and Future Outlook
In conclusion, the December employment report is expected to be a crucial input for the Bank of Canada’s January policy decision. The labour market trends, including the stabilization in trade-exposed sectors and the expected decrease in the unemployment rate, suggest that the economy is on track for a gradual recovery. The Bank of Canada’s decision to raise interest rates will depend on various factors, including the labour market, inflation, and economic growth. As Fan notes, the key to understanding the Bank of Canada’s policy path is to consider the risks and the potential implications of the labour market trends. With cautious optimism for the economic backdrop in 2026, it is essential to continue monitoring the labour market and adjusting policy accordingly to ensure a sustainable economic recovery. Overall, the labour market is expected to continue to play a crucial role in informing the Bank of Canada’s policy decisions in 2026.