Blockbuster December job numbers could calm the rate cut frenzy

The national economy ended 2024 on a surprisingly strong note, adding almost 91,000 new jobs, nearly four times the forecasted number. It marked the largest monthly increase in almost two years. This unexpected surge, largely driven by full-time employment, could have significant implications for monetary policy and mortgage rates, for Canada’s long-term economic trajectory—and for Toronto’s private mortgage lending market.

Job Growth Surpasses Expectations

In December, almost two-thirds of the new jobs came from full-time positions, with gains spread across both the goods-producing and service sectors. Employment in the goods sector increased by 22,500 jobs, largely in manufacturing, while the service sector added 68,400 jobs, led by educational services, transportation, and warehousing. Ontario’s economy fared extremely well, as it gained over 15,000 manufacturing jobs and over 23,000 new jobs overall.

This robust performance defied analyst expectations. Economists surveyed by Reuters had anticipated only 25,000 new jobs and a slight uptick in the unemployment rate to 6.9%. Instead, the unemployment rate declined to 6.7%, suggesting a labor market recovery that is faster and more widespread than many had predicted. Canada’s mirror a big uptick in employment in December in the U.S., where 256,000 new jobs were created, beating estimates of a 165,000 gain.

What’s Driving the Gains?

Several factors contributed to December’s strong job growth:

Sectoral Expansion: Growth in education and transportation reflects rising demand for services that support Canada’s economic infrastructure.
Manufacturing Resilience: Gains in manufacturing jobs indicate resilience in a sector often susceptible to global economic uncertainties. All three levels of government in Canada have been pouring billions to attract world-class manufacturing investments, particularly in Ontario.
Policy Support: The Bank of Canada’s earlier interest rate cuts may have spurred business investment, leading to job creation, more consumer spending, and an uptick in real estate activity.
It’s not all roses and rainbows. A significant portion of the Canadian workforce remains tied to industries heavily reliant on U.S. demand. Statistics Canada noted that 8.8% of Canadian workers, or approximately 1.8 million people, are employed in sectors dependent on U.S. exports. These include oil and gas, pipeline transportation, and primary metal manufacturing, all of which are vulnerable to potential U.S. tariffs.

Interest Rates and Economic Outlook

The robust job growth has prompted some analysts to reassess their expectations for a rate cut at the Bank of Canada’s (BOC) January 29 meeting. Before the December jobs report, the likelihood of a 25-basis-point cut stood at 70%. That probability has now dropped to 61%, as the labor market’s strength eases pressure on the central bank to further reduce borrowing costs. U.S. analysts mirrored this expectation for the Fed, with many arguing that it will be “very slow” to make a next cut, and with others arguing that rates are in a healthy position more in line with long-term historic averages. Tembo can’t predict the BOC’s next moves with certainty, but there is no doubt that this strong performance will cool temptations for more monetary easing.

Regardless, the majority of economists expect a rate cut this month. Elevated unemployment rates in previous months and ongoing threats from U.S. trade policies point to an economy that remains under strain. What Tembo does predict is that policymakers across the halls of government and at the Bank of Canada will be mindful of the need to stimulate the economy given the pressure it will soon be under by the White House.

Royce Mendes, head of macro strategy for Desjardins Group, highlighted how aggressive U.S. tariff threats and rising global bond yields continue to weigh on Canadian business confidence.

Implications for our Customers and for Ontario real estate

1. Stronger Employment Increases Borrower Confidence

The addition of nearly 91,000 jobs will bolster overall confidence in the economy and in the long-term need for housing, particularly for potential homebuyers and investors. With more people securing full-time employment, the demand for housing—and consequently, mortgages—is likely to increase. Private mortgage lenders in Toronto should anticipate higher inquiries from borrowers seeking alternative financing solutions as they look to capitalize on the city’s competitive real estate market. Strong jobs growth will also continue to feed in to immigration, which is crucial for long-term housing demand.

2. Interest Rate Expectations Create Opportunities

While a rate cut may still be on the table, its likelihood has diminished slightly. If the Bank of Canada opts for a more cautious approach, conventional mortgage rates might stabilize or even rise slightly. This is where Tembo can step in to offer competitive, flexible alternatives for our customers and prospective clients who might find traditional financing options less appealing, more time consuming, or more stringent.

3. Manufacturing and Service Sector Strength Boosts Niche Markets

Growth in manufacturing and transportation sectors could lead to increased housing demand in areas near Toronto’s industrial hubs. We can offer tailored solutions for clients in growing communities across southern Ontario, such as bridge financing or short-term loans, to help them secure homes closer to their places of employment.

Call Tembo at +1 844-238-6717 to explore how we can help you in this evolving landscape. Whether you’re a prospective homebuyer, real estate investor, or borrower seeking alternative financing, we can offer tailored solutions, extremely rapid approvals, and white glove service to help you achieve your goals.