OTTAWA - In a positive turn for the Canadian labor market, hiring experienced a resurgence last month, leading to a steady jobless rate. Nevertheless, signs of potential headwinds loom as the economy continues to cool, according to recent data from Statistics Canada.
During August, the number of employed individuals of working age in Canada increased by 39,900 compared to the previous month. The unemployment rate remained unchanged at 5.5%, following three consecutive months of consecutive increases. This employment growth was stronger than anticipated, surpassing the economists' consensus of 17,500 jobs expected to be added. It also exceeded the country's average monthly employment growth of 25,000 since January.
However, despite this positive growth, employment is struggling to keep pace with the rapidly expanding working-age population. In August alone, the working-age population grew by 102,900 and has been averaging at 81,000 per month since the beginning of the year. Consequently, the employment rate dropped by 0.1 percentage point to 61.9% last month. This represents a decline of 0.6 points compared to January. Statistics Canada estimates that in order to maintain a constant employment rate given the record-high population growth, approximately 50,000 jobs need to be added each month.
While the Bank of Canada is monitoring the situation closely for signs of an ongoing softening in the labor market, it elected to keep interest rates unchanged this week. The central bank remains concerned about persistent underlying inflationary pressures, including wage growth, which only marginally weakened in August.
When applying the methodology used by the U.S. Labor Department to calculate the unemployment rate, Canada's figure for August was slightly lower at 4.5%, compared to 4.7% the previous month. In contrast, the unemployment rate in the United States rose to 3.8% in August, up from 3.5% in the prior month, as more Americans actively sought employment.
Economic Growth Slows in Canada
Economic growth in Canada experienced a significant slowdown in the second quarter of the year. Contrary to expectations, output contracted by 0.2% on an annualized basis. This decline can be attributed to weakening consumption growth and faltering housing activity. Furthermore, numerous industries were impacted by forest fires that ravaged various parts of the country.
Headline inflation, which had been a concern, has also slowed considerably since its peak last summer. However, there was a slight uptick in July, largely due to an increase in gasoline prices. It is expected that inflation will remain elevated in the near-term.
The Bank of Canada has decided to keep its policy rate at a 22-year high of 5%. This decision was influenced by evidence that excess demand in the economy is easing, along with the lagged effects of previous tightening of monetary policy. However, the bank remains vigilant and is prepared to further raise rates if necessary. The primary focus is on whether inflation is on track to reach the target of 2%. Currently, year-over-year and three-month measures of core inflation indicate a rate of approximately 3.5%.
One key indicator monitored by the Bank of Canada is average hourly wage growth. In August, wage growth saw a slight decrease, rising by 4.9% compared to July's 5.0% gain. Despite this slight dip, wages have continued to grow at around 4% to 5% over the past year, even with productivity growth remaining weak.
The most recent jobs report, published on Friday, revealed that the biggest increase in employment in August was among self-employed workers. Interestingly, this marked the first notable increase in self-employment in nine months. However, there was little change in the number of workers employed in the private or public sectors.
Although the number of unemployed individuals remained relatively stable in August compared to the previous month, it has seen an overall increase of 11.6% since April. Additionally, data based on three-month moving averages indicates that 57.8% of those unemployed in July remained jobless in August. This proportion is higher than the 53.4% recorded a year earlier, suggesting that job seekers may be encountering greater difficulty in finding employment compared to the previous year.
Job-Changing Rate Hits a Low in August
The job-changing rate for workers experienced a decline in August, with only 0.4% of employees switching jobs during this time period. This figure is significantly lower than the peak of 0.8% which occurred in January 2022. Prior to the Covid-19 pandemic, the average job-changing rate stood at 0.7% from 2017 to 2019.
It is worth noting that despite the decrease in job changes, the majority of employed individuals managed to remain in their current positions from one month to the next.
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