Employment gains in the public sector more than offset losses among Canadian businesses last month, highlighting a labour market that has been propped up by government hiring.

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In February, public-sector roles rose by 18,800 positions, while the private sector lost 16,400 jobs, Statistics Canada data showed. Over the past year, employment in the public sector has grown 4.7 per cent, versus 1.2 per cent in private industry.

“If you look at how the private sector’s trending, it’s sharply decelerating,” Beata Caranci, chief economist at Toronto-Dominion Bank, said. “That’s tied to the interest rate cycle, not the government hiring that’s tied to specific funds and social policy.”

Caranci said she’s focused on the job market as one of the key metrics to gauge the timing of Bank of Canada rate cuts. The central bank held its key rate steady at five per cent this week, saying it needs to see sustained downward momentum in core inflation before considering cuts. Many economists in a Bloomberg survey expect it to begin lowering borrowing costs in June.

If you look at how the private sector’s trending, it’s sharply decelerating

Beata Caranci, chief economist, TD Bank

The trend in hiring by businesses “is going to be one of the more compelling arguments if they are going to cut interest rates earlier or later,” she said. “That, to me, is going to be a huge influence on their decision if we see private sector demand really starts to collapse.”

Last month, the labour market surged past expectations with the biggest job gains since September, but a rising unemployment rate and slowing wage growth still point to easing inflation pressures ahead. Self-employed positions along with public-sector roles drove the increase of 40,700 jobs.

The federal public service has grown by 38 per cent since Prime Minister Justin Trudeau came to power in 2015, according to MEI, a Montreal-based think tank. Recently, Treasury Board President Anita Anand led a spending review that moved some $10.5 billion that was earmarked for consultants and travel over the next three years to other areas, such as health care and housing.

Anand said the goal of the review was not to cut jobs, but some may be lost as government employees leave and aren’t replaced.

“For certain departments, as a result of this exercise, there may be changes in the workforce because of the redeployment of employees to higher priority activities or through attrition,” she said, adding that senior bureaucrats will be responsible for those decisions.

— With assistance from Laura Dhillon Kane.

Bloomberg.com