Tepid Job Numbers Signal Labour Market is Falling in Line

Canadian Economics

By: Liam Daly

  • The economy added a modest 40,000 jobs in August, driven by an increase in self-employment, which hid a decline in private sector employment. The unemployment rate remained unchanged at 5.5 per cent while bullish population growth pulled the employment rate down to 61.9 per cent.
  • Among the goods-producing industries, construction employment increased by 34,000, though this increase was outweighed by declines across manufacturing and agriculture. Meanwhile, in the service economy, professional, scientific, and technical services posted marked employment growth. Solid gains were also recorded in the “other services” sector and transportation and warehousing. On the downside, employment in educational services fell to its lowest level in 12 months.
  • Across Canada, employment rose in just 3 of 10 provinces. Increases were recorded in Alberta (+18,000), British Columbia (+12,000) and Prince Edward Island (+1,800). Employment declined in Nova Scotia (–3,600). Employment remained essentially unchanged in the remaining provinces.
  • After accelerating in July, the year-over-year pace of average hourly wage growth slowed marginally to 4.9 per cent in August.

Key Insights

August’s tepid LFS result reflect a cooling labour market responding to the latent effects of higher interest rates. Recent GDP numbers show a marked slowdown in consumer spending growth in the second quarter of the year. Weaker consumer spending is likely to weigh on employment growth across several areas including in-person services, retail, and manufacturing.

While employment growth decelerates, Canada’s population growth remains hot, fuelled by high levels of immigration and an inflow of non-permanent residents. The result is a growing wedge between labour force and employment growth. This is captured by the unemployment rate, which has risen in recent months. We expect this trend to continue as Canada’s economy slows and the federal government pursues record immigration numbers.

The labour market is gradually shifting to a disinflationary footing. Further upward movement in the unemployment rate will weigh on household income growth, creating resistance to consumer spending. Meanwhile, competition for workers is easing, encouraging wage growth deceleration. Yet despite easing demand for both workers and products, inflationary challenges on the supply side of the economy remain. This week brought news of a fifth consecutive quarterly decline in labour productivity and an acceleration in unit labour costs. A fall in hours worked, stoked by fires and floods in certain regions, pushed up hourly compensation as more workers found themselves inactive on paid leave. Productivity growth is a potent remedy to inflation, placing downward pressure on unit labour costs and ultimately prices. A lack of productivity growth in the Canadian economy over recent quarters is at odds with the Bank of Canada’s inflation reduction agenda.

For more insight on the labour market see our Canadian Hiring Index, released monthly.