Canada: Job Gains Fail to Bring Down the Unemployment Rate
- Net total Canadian employment rose by 40k in August 2023 to end a string of downbeat data. The unemployment rate held steady at 5.5%. Table 1 summarizes key data points.
- With a surprisingly upbeat print, our tracking now suggests real GDP to be broadly unchanged in Q3 2023. That is an improvement from the prior reading but still well below the Bank of Canada’s latest projection of a 1.5% advance.
August’s headline jobs figure certainly came as a surprise given several weak data points since the last employment release. But the release contained both signs of strength and pockets of weakness. Notably, the employment spike was concentrated in full-time jobs, and hours worked rose by a hefty 0.5% in the month. Yet, of the total job gains, 49.5k self-employed positions were created, whereas conventional employment fell by 9.6k. Private-sector jobs also dropped by more than 20k for a second consecutive significant monthly decline.
From an inflation control perspective, another acceleration in the growth in permanent employees’ wages is troubling. This indicator is tracked closely by the Bank of Canada to assess potential wage-push inflation. In addition to the headline pickup, many individual sectors experienced a reacceleration last month.
Once again, however, population growth was the big story. Source population gains set a new all-time record of 3.9% (m/m annualized) in August (graph). So, last month’s job creation continued to lag the pace of hiring implied by recent headcount gains, which the Bank of Canada highlighted yesterday as an indication that labour demand was cooling from previously overheated levels. Still, the sheer strength of population growth has the potential to put upward pressure on demand for goods and services going forward. Over time, of course, strong population growth also increases the supply of labour, which should ease labour market tightness and could help contain wage-push inflation.
In all, we don’t think August’s data will change the Bank of Canada’s plans to keep rates on hold at its October meeting. Canadian consumers and businesses have yet to feel the full effects of prior hikes, and there is mounting evidence that economic growth and inflation are cooling. But the pickup in wage gains and continued boost from population growth mean that rebalancing the economy isn’t done yet.
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