On the surface, the January employment report released today had the signs of a relatively strong economic backdrop.

Net employment was up by over 37,000 positions and the unemployment rate ticked down to 5.7%—its first decline in 14 months.

But economists say that when you dig into the details, the results are actually more mixed. 

"The headlines for today's job report suggested surprising strength from the Canadian labour market,” wrote James Orlando of TD. "However, while falling unemployment is a good sign for the strength of the job market, the underlying details were weak.”

For example, the majority of the job gains were all part-time positions (+48.9k), while nearly 12,000 full-time positions were lost.

Orlando noted that the majority of gains were in "cyclically insensitive” public sector hiring, and that seasonality tends to impact employment figures at this time of year.

Meanwhile, the dip in the unemployment rate from 5.8% to 5.7% came alongside a decline in the participation rate. The country’s population grew by a record 125,000 people in January, but just 18,000 net new people entered the workforce.

"We'd argue that it is not the type of report that makes us think the Canadian labour market is in for a renewed upturn,” Orlando noted.

What it means for the Bank of Canada’s future rate decisions

Still, markets took the report as largely positive, particularly considering the unemployment rate isn’t rising as quickly as many expected and against the backdrop of a stalled economy. 

"Today's data confirm that the Bank won't be in a rush to cut interest rates, and we maintain our expectation for a first move in June,” wrote CIBC’s Andrew Grantham. "Given indications from today's data and previously released GDP figures that the Canadian economy is in somewhat better shape than previously expected.”

As a result, CIBC scaled back its expectations for Bank of Canada rate cuts this year. It now expects the central bank to deliver 125 basis points (bps) worth of easing rather than 150 bps.

Among the other big banks, most anticipate around a percentage point worth of cuts in 2024, which would bring the overnight target rate to 4.00% from its current level of 5.00%.

"The Bank of Canada won't change course after today's report,” TD’s Orlando added. "The data are simply too volatile and don't paint a clear picture of the state of the Canadian economy. This leaves the BoC to continue fixating on the state of inflation.”

February employment data will be released on March 8, 2024