Jaded in July: Labour Force Contracts and Jobs Flatline

In July, employment in Canada was little changed on the previous month, marking a third consecutive month of stagnant job growth. The size of the labour force fell by 11,000, the first contraction since June 2022. This decline was fuelled by lower labour force participation among young men and women. Meanwhile, the unemployment rate remained unchanged at 6.4 per cent.

Total employment across goods-producing sectors rose modestly, supported by small gains across all industries except manufacturing, which fell slightly (–8,600). Meanwhile, employment across the service economy fell (–14,000), with the largest declines recorded in wholesale and retail trade (–44,000) and finance, insurance, real estate, rental and leasing (–15,000). The largest employment gains occurred in public administration (+20,000) and transportation and warehousing (+14,500). 

Across Canada, employment rose in just 2 of ten provinces. Employment increased in Ontario (+22,000) and Saskatchewan (+6,700). Declines were recorded in Manitoba (–5,400) and Nova Scotia (–4,800). In the other provinces, employment was essentially unchanged.

On a year-over-year basis, average hourly wage growth rose by 5.2 per cent year-over-year slightly below the 5.4 per cent pace of the previous month.

Key Insights

Employment Insurance (EI) claims are not keeping pace with the rising rate of unemployment in Canada. Over the year, Canada’s unemployment rate has drifted upwards, while the share of EI beneficiaries in the labour force has remained relatively flat. This divergence suggests an increasing share of unemployed workers are not receiving income support. The slowdown in Canada’s labour market is having an outsized impact on new entrants to the job market including young workers and newcomers (including recent immigrants and temporary residents). Eligibility for EI benefits are contingent on having worked a threshold number of hours over the previous year. This makes it harder for those without a long-established history in the Canadian labour market. Without the provision of income support, unemployed workers are at greater risk of financial insecurity.

Curbing temporary resident numbers won’t be a silver bullet. In the spring, the government announced plans to reduce the stock of temporary residents in Canada over the next three years. Since the announcement, the share of temporary residents in the population has continued to rise. How the government will reduce the share from 6.8 per cent of the population today to 5.0 per cent within the stated timeframe remains unclear. One option is to offer more temporary residents the option of permanent status. Strong migrant-led population growth has been linked to the several of Canada’s thorny economic challenges including housing shortages and weak productivity growth. Reducing temporary resident numbers in Canada will be a gradual process and alone will not resolve the supply-side issues in the housing market or weak innovation in Canada relative to its peers.

Hiring remains subdued with firms still opting for cautiousness. The Canadian job vacancy rate and our own Canadian Hiring Index have shown little sign of revival having declined steadily amid weakening labour demand over the past two years. While good progress has been made on inflation, businesses clearly remain cautious when it comes to growing the payroll. Meanwhile, recent volatility in global financial markets, fueled, in part, by a weaker-than-expected U.S. job report is a sign of underlying nervousness among investors. While our view on the fundamentals of the U.S. outlook remains unchanged, this week’s market movements highlight how much the perceived health of the U.S. economy guides wider confidence in the global economy. Today’s tepid job numbers in Canada will do little to build confidence among businesses that momentum is building, and we are unlikely to see a pick-up in hiring until sentiment improves.