Canada’s economy had a February for the ages.

Employers created 337,000 jobs in February, recouping the 200,000 positions that disappeared during the worst of the Omicron wave in January, and then adding the equivalent of an exceptional month of hiring on top of it.

The jobless rate plunged to 5.5 per cent, which is the lowest since the start of the pandemic, and among the lowest recorded since the mid-1970s, which is as far back as Statistics Canada’s monthly Labour Force Survey goes. (The lowest jobless rate was 5.4 per cent in May 2019, and it was 5.7 per cent in February 2020.)

Big drops in the unemployment rate can be deceptive, because the calculation can be skewed by the number of people who are actively looking for work. That wasn’t an issue last month, since the participation rate, which measures the percentage of the working-age population that is either working or actively seeking employment, increased to 65.4 per cent, erasing January’s decline and returning to pre-COVID-19 levels.

Some 84.6 per cent of women aged 25 to 54 were employed, the highest employment rate ever recorded for that group. Similarly, the employment rate of Indigenous men (78.6 per cent) and Indigenous women (74.5 per cent) in that age group rose to record highs. (The employment rate for core-aged men rose to 88.2 per cent, the highest since November 1981.)

Those indicators matter because policy-makers were sensitive about removing economic stimulus too soon, as they worried a hasty pivot to austerity could exacerbate inequality. Wealth gaps remain, but the unprecedented emergency spending deployed in the immediate aftermath of the pandemic appears to have kept them from getting worse.

Bay Street was astonished by the numbers. “What a report!” James Orlando, an economist at Toronto-Dominion Bank, said in a note to clients.

The median estimate of Bay Street forecasters suggested most were expecting an increase of about 160,000 jobs, and that the jobless rate would only fall to 6.2 per cent from 6.5 per cent in January. The value of the Canadian dollar rose after the release, and bond yields jumped, as investors reset their price expectations to align with a stronger economy.

There had been a sense the economy would need more time to push through the headwinds created by Omicron. Last winter’s fight with COVID-19 caused growth to stagnate. Bank of Canada governor Tiff Macklem opted against raising interest rates in January in part because he was unsure how the economy would respond to strict lockdowns in Ontario and Quebec.

Bank of Nova Scotia’s nowcast of first-quarter gross domestic product, which updates in real time when new data are released, accelerated to an annual rate of growth of 5.2 per cent, compared with the Bank of Canada’s January estimate of about two per cent.

If there was any doubt Canada’s recovery from the pandemic-led recession was complete, it is now gone. The hiring numbers also challenge the view that the country is on the verge of stagflation, a period during which growth flatlines even as prices rise. There’s still reason to worry about inflation: the consumer price index surged 5.1 per cent in January from a year earlier, well outside the Bank of Canada’s target of two per cent. But with the jobless rate at record levels, there appears to be little reason to fret about stagnation.

“The labour market is in excellent shape, so the Bank of Canada should continue to normalize monetary policy over the coming months,” Benoit Durocher, an economist at Desjardins Group, said in a note.

Canada’s central bank has already concluded that the country’s current economic output aligns with its estimate of what businesses and workers can produce without triggering inflationary forces, and has started down a path that will lead to steadily higher interest rates this year. Policy-makers began with a quarter-point increase on March 2, lifting the benchmark rate to 0.5 per cent.

The new jobs numbers back that decision, and some economists, including Veronica Clark at Citigroup Global Markets Inc. and Charles St-Arnaud at Alberta Central, think the latest data could prompt policy-makers to take a steeper path to a higher interest-rate setting.

Total hours worked surged 3.6 per cent from January, rising to a record. The underutilization rate — the proportion of people in the potential labour force who are unemployed; want a job but have not looked for one; or are employed but working less than half of their usual hours — dropped to 12.1 per cent, within the range Statistics Canada observed through 2018 and 2019.

Average wages increased 3.1 per cent from February 2021, significantly faster than the 2.4-per-cent rate recorded in January. That could signal inflationary pressures, already intense, will continue to build.

“The country has reached full employment, and worker shortages are beginning to feed into wage pressures,” Karl Schamotta, chief market strategist at Cambridge Mercantile Corp., said in a note to clients. “The Bank of Canada is widely expected to upgrade its inflation forecasts and announce another interest rate hike at its next meeting on April 13.”

The war in Ukraine is, of course, a new wildcard in any economic outlook. Eastern Europe is far away, and Canadian companies and investors have relatively little exposure to Russia, which has been all but expelled from the global financial system in retaliation for its invasion of a neighbouring country that posed no threat. Still, anything that roils the global economy will have implications for Canada, given its reliance on trade. Slower growth abroad will mean slower growth here.

However, the Bank of Canada’s preoccupation, for now, is inflation, as the consumer price index is advancing at its fastest pace in more than 30 years. The war is stoking inflation even further by putting more upward pressure on commodity prices. The case for higher interest rates was strong before the latest jobs numbers were released. It is even stronger now.

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