Strong jobs gain last month hides signs of weakening labour market, economists say
By Nojoud Al Mallees, The Canadian Press on October 6, 2023.
OTTAWA – The Canadian economy added more jobs than expected last month, but with the gains driven by a seasonal spike in education employment and an increase in part-time work, economists say the job market is weaker than it looks. Statistics Canada released its September labour force survey Friday morning, which shows employment rose by 64,000 jobs. The unemployment rate continued to hold steady at 5.5 per cent for the third month in a row. “While the headline figures will be grabbing most of the attention, we’d caution on getting too excited. Almost all the gains were in the historically volatile education sector,” said TD director of economics James Orlando in a client note. “Furthermore, most of the job gains were in part-time employment, causing the number of hours worked to decline. These details should throw some cold water on a seemingly hot jobs report.” More people were working in educational services and transportation and warehousing while jobs were shed in finance, insurance, real estate rental and leasing, information and recreation, and construction. Canada’s labour market has cooled over the last year as interest rates have risen: job vacancies have fallen and the unemployment rate has edged up. Still, economists say the job market has held out better than expected. “Around a year ago, I would say that conventional wisdom turned to the view that the economy was going to go through at least a mild downturn, if not something a bit more serious than that. And I would say overall, things have held up better than expected,” said Douglas Porter, BMO’s chief economist. Even with the recent rise in the unemployment rate, it remains below pre-pandemic levels. The unemployment rate averaged 5.7 per cent in 2019, the year before COVID-19 upended economic trends. Wage growth has also remained relatively strong as workers demand raises to compensate for the rise in cost-of-living. Average hourly wages in September were up five per cent from a year ago. “The takeaway that is that even with a little bit of softening around the edges, the job market is still quite tight,” Porter said. Strong population growth has also been supporting larger monthly job gains, as more people enter the labour force. The Bank of Canada has been keeping an eye on the labour market to gauge whether the economy is cooling enough to bring inflation back to its two per cent target. The central bank has stressed that the tight labour market is a symptom of an “overheated” economy, where demand for goods and services is outpacing supply. While the central bank’s rate hikes are starting to be felt in the economy, both Orlando and Porter say the labour market has not loosened enough to suggest the Bank of Canada’s job is done. “We haven’t seen any trends that are obviously screaming at us saying, ‘the economy is moving in the direction the Bank of Canada needs to get inflation back down,'” Orlando said in an interview. The Bank of Canada’s key interest rate is sitting at five per cent, the highest it’s been since 2001. Last month, the central bank opted to hold its interest rate steady after data showed the economy shrank in the second quarter. But it kept the door open to more rate hikes, depending on how inflation and the economy evolve. It’s set to make its next interest rate decision on Oct. 25. The Bank of Canada will have another inflation reading to consider before its next decision, along with new data on inflation expectations from its consumer and business surveys. Both Orlando and Porter said the rate decision is now a “closer call,” though neither TD nor BMO are officially expecting a rate hike. “We think that the totality of the data (is) pointing to more and more weakness,” Orlando said. “Yes, we have things like the labour market and inflation that are not responding as quickly as we’d like. But those are the lagging indicator, those are the last things to turn, like you can be in recession and still have job gains.” This report by The Canadian Press was first published Oct. 6, 2023. 27-26
