As Leaves Fall, the Unemployment Rate Rises in October

Key Insights

Recent GDP numbers indicate that the Canadian economy is heading for a growthless third quarter. Subdued consumer spending, as well as lower investment and export demand will continue to test the resolve of Canadian businesses in the months ahead. But pressure is already taking a toll. Data reveals that in the first 8 months of 2023, business insolvencies in Cananda were up 37 per cent on the same period in 2022. With interest rate cuts a long way off, rising financial pressure on firms will continue to fuel insolvencies over the next year, eroding labour demand, raising the risk of layoffs, and ultimately contributing to an increase in the unemployment rate.

This week the Canadian government tabled new immigration targets as part of the Immigration Levels Plan 2024-2026. The plan retains the targets of 485,000 in 2024 and 500,000 in 2025. The target for 2026 will be held at 500,000. Canada’s immigration strategy is primarily a response to labour market pressures, itself a symptom of the country’s ageing population. Recent polling indicates that low housing affordability in many regions is challenging public support for immigration. Immigration is the principal driver of population growth in Canada and critical to future economic prosperity. But for the strategy to work, the government must ensure that the development of infrastructure, public services and housing keeps pace.

Despite a gradual decline in job vacancies over the summer, pockets of persistent labour supply pressures remain, impacting hiring across several sectors including the health service, construction, food manufacturing and hospitality. Acknowledgeing these lingering challenges, the federal government recently announced an extension to the Temporary Foreign Worker (TFW) Program Workforce Solutions Road Map. The Road Map, introduced last year, aims to alleviate hiring pressures by enabling employers to fill a higher proportion of below-median wage vacancies through the TFW program. The extension was welcomed by the Canadian Federation of Independent Business but will raise renewed concerns over the merit of increasing the supply of low-cost labour. Opponents argues that this risks disincentivizing productivity-enhancing investment by firms, a key driver of real wage growth and improved living standards. The extended measures now include a requirement for employers to review TFW wages annually, ensuring they maintain pace with prevailing wage rates.

This week saw a tentative agreement reached between Unifor and St. Lawrence Seaway management to end an eight-day strike by St Lawrence Seaway workers. The strike prevented the passage of ships along the St Lawrence Seaway, a transportation corridor linking the Atlantic Ocean with the North American interior. Labour strife in Canada has intensified amid the rising cost of living and a tight labour market. In Quebec, after failing to reach an agreement with the provincial government, three union federations, representing over 400,000 public sector workers, have announced plans to strike next week. Strikes, by design, generate economic cost by leveraging collective action. Wages, which are normally front and centre in industrial disputes, are today growing a rate that the Bank of Canada warns is not compatible with returning inflation to within the target range. While rising wages are vital to safeguard living standards when prices rise, unless they are paired with productivity growth, they risk stoking inflation and further eroding purchasing power.