Quick take

Nearing Capacity? Employment Inches Up in May

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  • Modest employment growth in May points to an economy operating near full employment. Total employment rose by 40,000, the labour force participation rate was unchanged at 65.3 per cent, and the unemployment rate reached a new record low at 5.1 per cent.
  • More shifts are being seen under the surface. Part-time work (-96,000 jobs) continues to be swapped out toward full-time (+135,000). Gains were concentrated among women in all age groups, while there was little change for men. Importantly, absences due to illness were back down to pre-pandemic levels.
  • Sector profiles showed employment gains were broadly based. The largest increases were recorded in retail trade and educational services, though gains were spread across several service industries. On the downside, manufacturing and transportation and warehousing registered notable decreases.
  • Employment rose in 3 of the 10 provinces, steady in most others. Employment increased in Newfoundland and Labrador, Prince Edward Island, and Alberta. The only province to see a decline was New Brunswick, while all other provinces were relatively unchanged.
  • Nominal wages continued to rise, though beating inflation is a tall order. Year-over-year wage growth hit 3.9 per cent in May, building on the growth of the last two months. And the ratio of unemployed people to job vacancies hit an all-time low, at just 1.2.

Key Insights

With job vacancies still sky-high, near-term employment growth will be constrained by the labour supply. The unemployment rate is holding steady at record lows, but the slow growth in employment isn’t for lack of demand. Employment in accommodation and food services is still 14.0 per cent below pre-pandemic levels as firms struggle to find workers. With frequent and unpredictable closures and capacity restraints, many former workers in the industry have been drawn to greener pastures. And the long-term unemployed, who are far more likely to have a university education than the short-term unemployed, may not view these jobs as viable options. That points to a skills mismatch that has led federal and provincial governments to ease regulations on hiring temporary foreign workers.

Even with slowing job growth, the unemployment rate will remain near record lows. With an aging population, in the years ahead the number of retirees exiting the workforce will exceed new workers entering it. The ensuing drop in participation rates will result in unemployment rates staying low even as the Canadian economy achieves limited employment growth. That’s good news for job seekers but could make it increasingly difficult for businesses to find staffing. In other words, current labour shortages might only get worse.

With inflation stubbornly high and a low unemployment rate, strong wage growth will continue. Three straight months of year-over-year wage growth above three per cent are a welcome sight to workers, who have seen their purchasing power eroded by months of scorching price growth. Three factors point to wage growth continuing: record levels of inflation, bargaining power, and profits. Inflation persisting longer than many had predicted is leading workers to seek higher wages to maintain standards of living. With a tight labour market, workers have the bargaining power to demand high wages, and with strong profit growth for last year, many businesses have the funds to hike salaries.

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Sean Adams

Sean Adams

Economist

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