Underlying wage growth estimated at 2.7 per cent
OTTAWA (Reuters) — The Canadian labour market has seen progress in absorbing excess slack, the Bank of Canada said on Wednesday, citing a pickup in wage growth that, if sustained, could clear the way for more rate hikes by the central bank.
While the bank said elevated long-term unemployment and a low youth participation rate suggest there is still room to improve, it signaled more confidence in the job market as it held interest rates steady, as expected.
In a special section in its quarterly Monetary Policy Report, the central bank noted wages have continued to pick up as expected, even accounting for recent minimum wage increases in the provinces of Ontario and Alberta.
It estimated underlying wage growth at 2.7 per cent, just below the three per cent threshold that has historically been consistent with an economy in which there is no slack.
While it nodded to some elements of weakness in youth participation and long-term unemployment, the bank's Business Outlook Survey has highlighted labour shortages, particularly among skilled workers.
In its statement released as the bank held interest rates unchanged at 1.25 per cent, policymakers said they will continue to assess labor market data for signs of remaining slack.
Canada saw robust job gains in 2017 and wage growth has started to pick up. While the rapid pace of job creation is expected to slow this year, many economists view the labor market as being relatively tight.
But the bank is not yet ready to declare full employment.
"Although the level of labour market slack has decreased, some indicators continue to suggest that additional labor resources are available," the bank said, pointing to young workers and those that have been out of work for a long time.
"As labour markets tighten, firms may respond to strong demand by hiring from this pool of untapped resources."
For example, the youth participation rate has rebounded strongly in the province of British Columbia, while the national participation rate is still below where it was before the global credit crisis, the bank said.