- This note is part of a series that will be published after important data releases, documenting mechanical updates of the nowcast for Canadian GDP coming from the Scotiabank nowcasting model. The evolution of this nowcast will inform Scotiabank Economics’ official macroeconomic outlook.
The model is described in a related note here.
- Despite the restrictions related to the spread of the Omicron variant and the rising geopolitical tensions that exploded into the Russian invasion of Ukraine, the Canadian economy continued to surge ahead in early 2022. Having incorporated all the available data, including the Labour Force Survey for February, the nowcast points to GDP growth of +5.21% Q/Q SAAR in Q1-2022, a very strong start to the year.
- February saw a net gain of +337K jobs in Canada, the best showing since Sept 2020, when the labour market was rapidly gaining strength after the severe lockdowns in the spring of 2020. Hours worked were up by +3.6% m/m. The jump in both employment and hours worked in February more than reversed sharp declines seen in the previous month.
- The employment gains were concentrated in the sectors most severely affected by the public health restrictions in January, such as accommodation and food services (+114K m/m) and information, culture and recreation (+73K m/m). Employment gains were not limited to these industries, however, with construction adding +37K net jobs, similar to growth in wholesale and retail (+38K).
- Remarkably, the unemployment rate fell by a full percentage point to 5.5%, just 0.1 ppt above the record low reached in May of 2019. The fall in unemployment was despite a sharp increase in the number of job seekers, with the labour force participation rate surging by 0.4 ppts to 65.4%, fully reversing the decline recorded in January.
- While the nowcast may be overstating growth in Q1-2022, there is little doubt that the economy entered 2022 on a very strong footing. The increase in employment, rising inflation and sharp increases in oil prices should clear any doubts in the minds of the Bank of Canada’s governing council that a rapid withdrawal of the monetary stimulus is required in the coming months.
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