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Stronger Than Expected Labour Market Unlikely to Push Rates Higher

11 September 2023

The Canadian jobs market has followed a sawtooth pattern this year, with soft months followed by an uptick. This trend continued through the summer, with August job gains coming on the heels of losses in July. While the most recent data suggests a slight rebound in the labour market, the gains are not strong enough for the Bank of Canada to rethink its position on monetary policy. Importantly, Statistics Canada has noted that with the steady growth in population, 50,000 new jobs a month are required to keep the unemployment rate unchanged.

We believe that the Bank will leave its policy rate unchanged for the rest of the year to allow the full impact of past rate increases to take effect. Historically, after monetary policy becomes restrictive, a downturn follows within five to seven months. In Canada, monetary policy did not become restrictive until late 2022/early 2023.

August Employment Numbers

Despite adding nearly 40,000 jobs in August – double the consensus expectation from economists – the unemployment rate remained unchanged at 5.5%, mainly due to a small decline in the participation rate from 65.6% to 65.5%. The employment rate, or the share of the population that was working, decreased to 61.9% as population growth outstripped employment gains. While the August report was solid, the fact that self-employment drove job gains (49,500 jobs) is a potential concern.

The job-changing rate, which represents the percentage of workers who switch jobs between months, was 0.4% in August – half the rate observed in early 2022 when job vacancies were high, and below the pre-COVID rate of 0.7%. This softening in the job market will ease wage pressures, although wage growth remains near the high end of the Bank’s comfort zone at 4.9% (on an annual basis).

At an industry level, employment gains were mostly in the service sector (+42,400), while the goods-producing sector saw a slight decline (-2,500), with job losses in manufacturing (-29,500) and agriculture (-10,500) partially offset by gains in construction (+33,800) and natural resource extraction (+5,300). Construction had been notably weaker prior to the August increase. The sector is up only 0.8% year-over-year compared to an increase in total employment of 2.5% year-over-year.

Regionally, Quebec is showing the lowest jobless rate at 4.3%, while provinces to the West are in the 5% range. To the East, the Maritime provinces are in the 7% range with Newfoundland at 8.9%.


Independent Opinion

The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any person or organization in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice including investment advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication. Readers are cautioned to always seek independent professional advice from a qualified professional before making any investment decisions.

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