Lockdowns led Canada to losing 200,100 jobs in January

Last month, Canada’s labor market faced a stronger-than-expected setback as the nation was hit with another wave of lockdowns aimed at fighting the omicron variant of COVID-19.

According to Statistics Canada, the national economy lost 200,100 jobs in January, marking an end of a seven-month period of increases. Meanwhile, economists in a Bloomberg poll predicted a loss of 110,000 positions. The jobless rate rose from 6% at the end of 2021 to 6.5%.

Nevertheless, analysts believe a rebound is coming this month as containment measures are lifted, leading the economy towards what central bank calls a full capacity. Despite that, the stronger-than-expected decline may raise questions about whether it’s time for the Bank of Canada to raise its key lending rate.

Markets still expect a rate hike from the BoC on March 2, and then five more during the next year.

Most of the losses were reported in pandemic-exposed sectors. Accommodation and food services accounted for 113,000 of the lost jobs. At the same time, goods-producing sectors showed increases, led by a construction segment.

Aside from the high-contact sectors, “the beginnings of another post-COVID recovery” are seen, says Royce Mendes from Desjardins Securities Inc. “As the central bank tries to restrain the inflation, rate increase is still on board in March.”

The largest declines were reported in Ontario and Quebec, where the lockdowns were most severe. Young workers accounted for almost half of the lost jobs.

Such results suggest a tough beginning for the Canadian economy in the first quarter.

BMO Financial Group chief economist Doug Porter says that “very ugly” economic data was expected, and that’s why the BoC decided not to raise its overnight rate last month.

“The economy is still facing severe restrictions from Omicron, and they only began at the start of the year,” – he noted.

“In my opinion, the central bank just wants to make sure the restrictions are being lifted and we’re heading towards normal conditions before it starts raising rates,” – said Doug Porter.