Mixed Signals: Employment and Unemployment Rate increase in June

The economy added 60,000 jobs in June. Despite this increase, the number of people searching for work also rose, pushing the unemployment rate up to 5.4 per cent.

Among the goods-producing industries, manufacturing employment rose by 27,000, outweighing declines in construction (-13,500) and agriculture (-6,000). Meanwhile, across the service economy there were mixed results. Notable employment gains were recorded in wholesale and retail trade (+32,600) as well as healthcare and social assistance (20,700).  However, employment fell in several other industries including educational services (-14,000) and professional, scientific, and technical services (-6,400).

Across Canada, employment rose in just 3 of 10 provinces. Increases were recorded in Ontario (+56,000), Nova Scotia (+3,600) and Newfoundland and Labrador (+2,300). Employment fell in Prince Edward Island (-2,400).  Employment remained essentially unchanged in the remaining provinces.

Year-over-year growth in average hourly wages fell to 4.2 per in June, a marked deceleration on the rates recorded in the earlier months of 2023. Indeed, June’s growth rate was the lowest recorded since May 2022.

Key Insights

Despite an increase in employment, in 7 of 10 provinces the unemployment rate rose. Today’s Labour Force Survey results hint that the long-anticipated slowdown in Canada’s job market is slowly taking shape. Almost sixteen months after the Bank of Canada began raising intertest rates, weakening economic demand is beginning to tell. The deceleration in wage growth is a signal that inflationary pressures are subsiding. Nevertheless, the Bank will unlikely forego a further interest rate hike next week. Resilience in consumer spending and labour demand continue to fuel concerns of sticky inflation, and preliminary estimates by Statistics Canada show a 0.4 per cent rise in GDP in May.

Shifting tides in Canada’s labour market are working to release some of the pressures that intensified over 2021 and 2022. According to the Bank of Canada’s Business Outlook Survey, the intensity of labour shortages faced by businesses is declining. High levels of international migration are bolstering labour supply while slowing economic growth is gradually weighing on labour demand. Although wage expectations among businesses and consumers remain elevated, we expect rising supply and falling demand for workers to cause wage growth to slow further over the coming quarters.

Canada’s labour productivity fell by 0.6 per cent in the first quarter of 2023, marking the fourth consecutive quarterly decline. Productivity growth is an important driver of higher living standards and international competitiveness. The recent decline was broad-based, affecting 12 of 16 sectors in the economy. Falling productivity is problematic, particularly when it coincides with elevated rates of wage growth. A combination of falling labour productivity and wage inflation means firms face rising production costs. Higher costs tend to be passed onto consumers and are an unwanted source of price inflation.