Canadian central bank’s action likely soon after job losses rise

Canada lost far more jobs than expected in January, with the declines driven by coronavirus lockdowns in populous Ontario and Quebec, while the unemployment rate rose sharply, Statistics Canada data showed.

The large decline in employment was seen reinforcing the Bank of Canada’s pledge to hold interest rates at 0.25% into 2023.

Canada’s trade deficit, meanwhile, narrowed more than expected in December, Statistics Canada data showed. Exports rose on energy products, while imports fell on consumer goods.

Money markets see an increased chance of the Bank of Canada (BoC) cutting interest rates closer to zero, as tightening economic restrictions to contain a second wave of COVID-19 cases offset optimism that activity will rebound later this year.

Canada lost 212,800 jobs in January, the largest monthly decline since the height of the first wave in April 2020, more than four times the average analyst prediction of a loss of 47,500 jobs. The unemployment rate climbed to 9.4%, its highest level since August, missing analyst expectations of 8.9%. Employment remains 4.5% below pre-pandemic levels.

“It’s definitely a disappointment,” said Derek Holt, vice president of Capital Market Economics at Scotiabank. “We’re going through a soft patch and better days are ahead. So I would view it as a transitory loss.”

Both Ontario and Quebec shuttered many nonessential businesses in late December, seeking to curb an expected surge of COVID-19 cases following the holiday season. New infections soared across Canada in early January, but have edged back down to an average 4,061 new cases daily.

Quebec has said it will start loosening restrictions next week, while Ontario has allowed schools in some cities to reopen and is expected to announce next week a path for businesses to reopen.

With many retailers shuttered in January and the restrictions also hitting hotels and food services, service sector employment plunged by 236,200 jobs. Employment in the goods sector rose by 23,400.

Full-time employment was up by 12,600 while part-time employment fell by 225,400 positions.

“There are some aspects that aren’t quite as dire as the headline would suggest,” said Doug Porter, chief economist at BMO Capital Markets, pointing to the losses being concentrated in part-time work and sectors hit by the shutdowns. “When we look ahead the fact that the losses are so heavily confined to a couple of sectors that were shut down does indicate that if and when things begin to open up again, those job losses should be reversed relatively quickly,” he added.

The Canadian dollar was trading 0.3% higher at 1.2792 to the greenback, or 78.17 US cents.

Canada’s move to limit inbound flights to four major airports as it seeks to curb the spread of COVID-19 from leisure travel is spilling over to business trips and fueling uncertainty which could delay economic recovery, industry executives said.

Canada, which already has some of the world’s toughest travel and quarantine rules, plans to introduce restrictions such as mandatory airport COVID-19 tests and hotel quarantines for up to three days.

Directing flights to four airports - Toronto, Montreal, Calgary and Vancouver -- which started Thursday, has created headaches for some companies in smaller cities.

Separately, the hotel quarantines, which were announced last week but await the drafting of formal rules, are creating uncertainty among essential business travelers who normally do not have to self-isolate.

“This kind of approach with business travel is going to hamper our efforts to rebound,” said Anthony Norejko, president of the Canadian Business Aviation Association (CBAA).

Prime Minister Justin Trudeau told reporters on Friday that Canada was looking at ways to further strengthen its land border with the United States, which has been shut to non-essential travel for almost a year, but gave no details.

Public Safety Minister Bill Blair told a separate briefing that “commercial truckers will remain exempt to ensure that supply chains, essential services and support for critical infrastructure are not adversely affected.”

The CBAA has asked Transport Canada to exempt certain corporate aircraft operators flying for essential business to smaller Canadian cities from having to land at a major airport like Toronto due to the extra costs and time.

“We understand that the new requirements can create inconveniences and frustration for some travelers, but we are putting in place those requirements to protect the health of all Canadians,” Transport Canada said.

Manitoba hog processor HyLife last week grounded flights to Minnesota, where it owns a plant, opting instead for the nine-hour drive each way, said Chief Executive Officer Grant Lazaruk.