Chill Lingers in the Labour Market as Winter Recedes

In March, total employment in economy was little changed on the previous month. Further growth in the labour force drove the unemployment rate up to 6.1 per cent. Young workers continued to bear the brunt of the slowdown. Data show the employment rate among youth aged 15 to 24 fell to the lowest level since 2012 (excluding the 2020 and 2021 pandemic period).

Employment in the goods-producing industry rose, supported by gains in manufacturing and construction. Meanwhile in the service economy, employment fell with an increase in healthcare and social assistance proving insufficient to offset notable declines in accommodation and food services, wholesale and retail trade as well as professional, scientific and technical services.

Across Canada, employment rose in just one of ten provinces. The job count increased in Ontario (+26,000; +0.3%) and fell in Quebec (–18,000; –0.4%), Saskatchewan (–6,000; –1.0%) and Manitoba (–4,300; –0.6%). In the remaining provinces, employment was essentially unchanged.

Average hourly wages grew by 5.1 per cent on an annual basis, a slight acceleration on the pace in February.

Key Insights

Little excitement as torpor prevails in Canada’s labour market. In the face of high interest rates, firms are navigating lower demand for goods and services. Hiring in the economy has slowed and weaker labour demand is translating into subdued employment growth. We expect the labour market performance to remain muted over the coming months and anticipate further rises in the unemployment rate. Interest rate cuts, expected around the middle of the year, will set the stage for a gradual rebound in labour demand.

The federal government announces plans to curb inflows of temporary residents. The plan to establish a “soft cap” on inflows of temporary residents will have important implications for the labour market, which relies on temporary residents, including international students and temporary foreign workers, to fill job vacancies across several sectors in the economy. Reducing the stock of temporary residents in Canada will increase competition for workers, particularly in low-wage sectors. Against a backdrop of weak productivity growth, boosting competition among Canadian firms may not be a bad thing, with competition serving as an engine of productivity-enhancing investment.

Recent warnings by the Bank of Canada highlight the thorny problem of weak productivity growth in Canada. Productivity among Canadian workers has deteriorated relative to those in peer nations, most notably the United States. Productivity growth confers many benefits, one of which, is as a bulwark against inflation. The economy is regularly buffeted by inflationary forces including energy price shocks, trade tensions and supply chain disruptions, many of which originate beyond Canada’s borders. Higher productivity means more efficient production. As efficiency increases, firms benefit from lower production costs and can offer more competitive prices to consumers. Productivity growth also provides room for firms to increase wages, which protects household purchasing power as prices rise. Productivity growth is potent antidote to inflation and reduces the reliance on monetary policy intervention. While the recent era of ultra-low interest rates has ended, returning to lower interest rates over the next decade will require an improvement in Canada’s productivity growth rate.