Canadians are receiving mixed signals with the most recent edition of Statistics Canada’s Labour Report. On the one hand the Canadian labour market experience robust job gains in June, adding 60,000 jobs – surpassing economists’ expectations. However, the unemployment rate also rose to 5.4% – the highest level in over a year, but still below the pre-pandemic 12-month average.
The increase in employment was driven by gains in full-time work, particularly in industries such as wholesale and retail trade, manufacturing, health care and social assistance, and transportation and warehousing. These job gains indicate a strong labor market, but they were not sufficient to absorb the influx of new job seekers, resulting in the rise in the unemployment rate.
One contributing factor to the rise in the labor force is the high population growth in Canada, fueled in part by increased immigration. The influx of workers has outpaced job growth, leading to a higher unemployment rate. While this addresses the issue of excess demand by adding to the labor supply, it also puts pressure on an already hot economy.
However, there are indications of “fraying” in Canada’s tight labour market beyond the rise in employment. Job vacancies have been trending down from historic highs, suggesting a moderation in labor market pressure as businesses find the necessary workforce. Additionally, year-over-year wage growth slowed significantly in June, dropping to 4.2% from 5.1% in May.
So, what does this mean for Canadians? Most are looking to the Bank of Canada to see what they will do next. The central bank has been looking for signs that its aggressive rate hikes are effectively cooling the economy and curbing inflation. Just last month they raised its key interest rate to 4.75% - the highest level since 2001.
…And the Uncertainty
The slowdown in wage growth could be seen as positive news for the Bank of Canada, as it indicates a potential easing of inflationary pressures. The larger labour pool resulting from high immigration levels may help alleviate wage pressures and contribute to the bank’s goal of cooling the economy.
Despite the rise in the unemployment rate, forecasters are still expecting to see the Bank of Canada raise interest rates once again. The fact that the strong job growth in June exceeded expectations could reinforce the bank’s plans for a rate hike as it seeks to control inflationary pressures.
Ultimately, analysts’ opinions on the upcoming interest rate decision are divided. While some expect a hike in July, others argue for waiting until September to assess additional data on jobs, inflation, and spending. The decision of whether the raise interest rates will be a balancing act for the Bank of Canada as it aims to manage inflationary pressures while ensuring sustainable economic growth. We’ll see shortly as the bank is making an announcement this morning, July 12.
Amidst the uncertainty of Canada’s economy, employers are becoming more cautious when it comes to expanding their workforce and discretionary spending. At the same time, workers and job seekers are placing a higher priority on factors like wages and job security, rather than simply seeking work flexibility. This shift in focus suggests a potential slowdown in the job market and potential losses for employees who have for months enjoyed a tight labour market when negotiating wages and work from home flexibility. However, whether this trend will continue in the coming months remains uncertain and is subject to speculation.
Further, although the unemployment rate is rising, it is not being experienced universally across Canada. There remain many markets where the scarcity of qualified candidates still exists, such as many skilled trades, some technology hard skills, and professional designations like P.Eng, RNA, CPA, etc. Meanwhile, at the opposite end of the job spectrum industries such as warehousing and light industrial and retail work continue to struggle to fill positions where the cost of living makes these minimum paying jobs less attractive than alternative options.
Employers need a good grasp of the Canadian labor market and its current nuances. With our extensive 46-year track record, we have a proven history of assisting employers in finding exceptional candidates and enhancing their hiring strategies. Our team of recruitment and human resource experts across the country is well-equipped to guide your business through the uncertainties of the current economic landscape, help you develop a compelling Employee Value Proposition, and most importantly – connect you with the right people right away. Take the first step and reach out to us today to get started on this journey.