Jobs creations in Canada beat expectations in January, when the economy added 37,300 positions, topping the highest forecast of 20,000 in Econoday's survey. The unemployment rate unexpectedly came down to 5.7 percent from 5.8 percent, below the 5.9 percent consensus, marking the first decline since December 2022. The participation rate edged down to 65.3 percent from 65.5 percent, the lowest level since September 2022. The number of hours worked increased 1.1 percent year-over-year and 0.6 percent on the month.

While average hourly wage growth slowed to 5.3 percent year-over-year from 5.4 percent in December, it continues to put upward pressure on underlying inflation. In its January monetary policy statement, the Bank of Canada had already pointed out that wages were still rising around 4 to 5 percent to indicate that underlying inflationary pressures remained.

Still, there were some signs of cooling labor market strength in the report. Employment gains, for one, were once again concentrated in part-time jobs, up 48,900, while full-time employment contracted 11,600. The public sector accounted for most of the gains as the number of employees increased 47,600, while it was up just 7,400 in the private sector. Self-employment fell 17,700.

The sector breakdown was a tale of two stories, with goods-producing industries shedding 23,000 positions across the board, including declines of 6,200 in manufacturing and 6,600 in construction. By contrast, services added 60,400 jobs, led by a 31,300 gain in wholesale and retail trade and a 27,700 increase in educational services. Finance, insurance, real estate, rental and leasing also had a strong showing with 28,100 positions created, followed by transportation and warehousing (19,900), business, building and other support services (16,000) and public administration (15,900). On the downside, accommodation and food services shed 30,300 positions on the month, and professional, scientific and technical services were down 16,500. Health care and social assistance and information, culture and recreation also recorded double-digit job losses.

These results give a slight lift to Canada's Relative Performance Index, which overall and also when excluding inflation moved from the negative mid-single-digits to the positive mid-single-digits to indicate that recent data on net are coming in within consensus ranges. This suggests that economic data, after a run of disappointingly soft readings in January, are now meeting the Bank of Canada's forecasts to further suggest that a rate cut is probably not very far away.

Employment in January is expected to rise 14,500 versus December's marginal 100 increase that compared with expectations for a gain of 10,000. January's unemployment rate is expected to rise to 5.9 percent from 5.8 percent.

The Labour Force Survey is a key economic indicator giving an overall picture of employment and unemployment. Employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The unemployment rate measures the number of unemployed as a percentage of the labor force.

As in the U.S., this report is used as an indicator of the health of the domestic economy. Employment trends and break-downs by industry groups highlight the strength in job creation and the implications for future sectoral activity. The unemployment rate is used as an indicator of tightness in labor markets and can foreshadow a future increase in wages. Labor force data provide investors with the earliest signs of industry performance. While other data are produced with a month or two delay, these data are available only a week to 10 days after the end of the latest month. Reactions can be dramatic - especially when the result is unanticipated.

The information in the report is invaluable for investors. By looking at employment trends in the various sectors, investors can take more strategic control of their portfolio. If employment in certain industries is growing, there could be investment opportunities in the firms within that industry.

The bond market will rally (fall) when the employment situation shows weakness (strength). The equity market often rallies with the bond market on weak data because low interest rates are good for stocks. But sometimes the two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about the potential for inflationary pressures.

The unemployment rate rises during cyclical downturns and falls during periods of rapid economic growth. A rising unemployment rate is associated with a weak or contracting economy and declining interest rates. Conversely, a decreasing unemployment rate is associated with an expanding economy and potentially rising interest rates. The fear is that wages will accelerate if the unemployment rate becomes too low and workers are hard to find.