Summer Sunshine Fails to Reach the Labour Market in May

Canadian Economics

By: Liam Daly

  • In May, employment in Canada inched up by 27,000. Meanwhile, the labour force grew by 50,000 and the unemployment rate ticked up to 6.2 per cent.
  • Total employment across goods-producing sectors fell, driven principally by a contraction in construction sector employment (-30,000). The job count increased in the service economy, spurred by gains in health care and social assistance (+30,000) as well as finance, insurance, real estate, rental and leasing (-29,000). These increases outweighed contractions among transportation and warehousing and educational services.
  • Across Canada, employment rose in just three of ten provinces. Employment increased in Ontario (+50,000; +0.6%), Manitoba (+7,800; +1.1%), and Saskatchewan (+5,400 +0.9%). Declines were recorded in Alberta (-20,000; -0.8%), Newfoundland and Labrador (-2,100; -0.9%) and Prince Edward Island (-1,100; -1.2%). In the other provinces, employment was essentially unchanged.
  • Reflecting the challenging business environment, the involuntary part time employment rate stood at 18.2 per cent in May, compared to 15.4 per cent a year prior. On a year-over-year basis, average hourly wage growth accelerated to 5.1 per cent.

Key Insights

The economy has now added a monthly average of 39,000 jobs over the first five months of the year, a respectable pace given the headwinds caused by high interest rates. However, these gains pale in comparison to the growth of Canada’s working age population, which this year has grown at a searing pace of over 100,000 per month, or, in annualized terms, 3.7 per cent. The rapid rate of population growth has seen the ranks of job seekers in Canada swell, pushing the unemployment rate upward. Data show that young job seekers are bearing the brunt of fewer employment opportunities.

However, the forces of supply and demand in the labour market are shifting, which will help to limit further rises in the unemployment rate. Inflows of temporary residents to Canada are expected to fall sharply over the coming quarters, slowing the rate of population growth. Meanwhile, a strengthening economy will gradually spur job creation as hiring appetite in the private sector recovers.

Over the last two years, hiring activity in the economy, tracked in our Canadian Hiring Index series, fell steadily, as rising interest rates drained business confidence. Less hiring has resulted in a marked slowdown in private sector employment gains. Were it not for consistent job growth across the public sector, the unemployment rate rises observed over the last 12 months would have been larger. The long-awaited announcement this week of a first rate cut by the Bank of Canada provides affirmation that underlying inflationary pressure in the economy is easing concretely. This rate cut and those to follow, will help support an improvement in business confidence, engender greater hiring appetite and importantly spur private sector employment growth over the coming quarters.