Canada: Cooling Labour Market Suggests Bank of Canada is Firmly on the Sidelines
- Net total Canadian employment mustered a gain of just 18k in October 2023, well below the 50k+ average in the prior two months. The unemployment rate rose to 5.7%, its first increase in four months. Table 1 summarizes key data points.
- There was not much change in our Q4 2023 real GDP growth tracking, which still suggests a modest acceleration from following a roughly flat print in the third quarter—below the Bank of Canada’s latest projection of 0.8% growth in both quarters.
It was a soft print nearly across the board. Employment growth slowed considerably, with part-time hiring offsetting a small decline in full-time work, and year-over-year gains in hours worked eased as well. Private sector hiring continued to lag public sector gains. Provincially, an outsized gain in Alberta masked significant employment declines in Quebec and Ontario.
Easing of growth in permanent employees’ wages (graph) is particularly positive from an inflation control perspective. Tracked closely by the Bank of Canada to measure signs of possible wage-push inflation, it had accelerated in the three prior months.
Reacceleration of growth in the population aged 15 years or older continues to present different short- and long-run risks, as we’ve highlighted several times before. The pickup followed a modest easing in September. The fact that the population again outpaced job creation led the unemployment rate to rise. In the current context, where the Bank of Canada is trying to rein in inflation, the surge in headcount gains risks boosting demand for goods and services and inflaming price pressures. However, over time, it should help to continue to increase the supply of available workers as well as reduce labour market tightness and potential wage-push inflation.
We remain of the view that the Bank of Canada’s next move will be a cut in the second quarter of 2024. The still-tight labour market is showing signs of easing, and Canadian consumers and businesses still haven’t felt the full effects of prior borrowing cost increases. We continue to anticipate that the economy will enter a mild recession in the coming quarters. Of course, upcoming data on inflation will be key, although this too is showing signs of moving in the right direction.
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