Canada posts hefty job gains, raising chances of another rate hike

Help wanted in Toronto

By Ismail Shakil

OTTAWA (Reuters) -The Canadian economy recorded a massive jobs gain in December and the jobless rate unexpectedly declined, according to official data released on Friday that raised the likelihood of the Bank of Canada raising rates again this month.

The economy gained a net 104,000 jobs in December, far exceeding analysts' forecasts, while the jobless rate decreased to 5% from 5.1% in November, Statistics Canada data showed.

Analysts surveyed by Reuters had forecast a net gain of 8,000 jobs and for the unemployment rate to edge up to 5.2%.

The employment gain was largely driven by full-time work, particularly among youth aged 15 to 24, and was spread across industries, Statscan said.

The average hourly wage for permanent employees rose 5.2% in December on a year-over-year basis, down from 5.4% in November.

The Canadian dollar was trading 0.5% higher at 1.35 to the greenback, or 74.07 U.S. cents, after recouping its earlier losses following the jobs data.

The Bank of Canada, which hiked rates at a record pace of 400 bps in nine months to 4.25% last year, has said it will be more data-dependent in setting the policy rate.

The strong jobs report raises the probability of another 25-bp increase at the central bank's January meeting, said Andrew Grantham, senior economist with CIBC Capital Markets.

"However, the next CPI report and the BoC's own business and consumer surveys, released in two weeks' time, will also be important in making that final decision."

Money markets now see a 75% chance of a 25-bp rate increase in January, up from roughly 60% before the data.

"The conventional wisdom was that the Bank was almost done, that maybe there would be one more quarter point hike in January and that would be it. And I think that broad-based assumption has to be at the very least questioned," said Doug Porter, chief economist at BMO Capital Markets.

Employment in the goods-producing sector rose by a net 22,200, mainly in construction. The services sector was up by a net 81,700 positions, led by transportation and warehousing as well as information, culture and recreation.

Employees in the private sector rose by 112,000 in December, the largest increase since February, while public sector and self-employed workers were both little changed, Statscan said.

(Reporting by Ismail Shakil; Additional reporting by Dale Smith in Ottawa and Fergal Smith in Toronto; Editing by Jan Harvey and Nick Macfie)