- Randall Bartlett
Senior Director of Canadian Economics
Economic News
Canada: The Higher Unemployment Rate in November Masks Underlying Labour Market Strength
December 6, 2024
Highlights
- Total Canadian employment rose by 51k jobs in November 2024, double the expectation of economic forecasters. While the unemployment rate jumped 0.3 percentage points to 6.8%, this was due to an influx of people looking for work that were previously on the sidelines. Total hours worked edged lower in November (-0.2% m/m), mostly due to labour disputes, but were up 1.9% y/y over the prior year. Separately, average hourly wage growth slowed to 4.1% in the month after reaccelerating to 4.9% in October. Table 1 summarizes key data points.
- Our Q4 2024 forecast for real Canadian GDP growth remained in the range of 2% to 2.5% annualized following the November employment data, broadly in line with the forecast in the Bank of Canada’s (BoC) most recent Monetary Policy Report (MPR).
Implications
Despite the rise in the unemployment rate, the November 2024 Labour Force Survey pointed to ongoing strength in the Canadian labour market. November saw the slowest monthly advance in population since late 2023. This helped the employment rate to stabilize at 60.6% after six consecutive monthly declines. And with more people looking for work, the participation rate moved up 0.3 percentage points to 65.1% (graph 1), thereby pushing up the unemployment rate to the same degree. The youth unemployment rate drove the move higher (rising to 13.9% from 12.8% in October), following two monthly declines, although the unemployment rate among prime-aged workers moved 0.2 percentage points higher as well (to 5.8%—the highest level since September 2021). Fortunately, it was this latter group of highly labour market-engaged workers that drove the outsized employment gain (+55k).
Slowing month-over-month population growth last month tentatively suggests this could be the start of a deceleration in the advance in Canada’s population. The federal government plans to reduce the number of both permanent External link. and non-permanent External link. residents admitted to Canada over the next few years. If it’s successful, that will weigh on headline real GDP growth External link., which has consistently declined on a per capita basis over the past two years, supporting ongoing rate cuts by the Bank of Canada. If the federal government’s plans are fully implemented, it also poses a meaningful downside risk to the central bank’s economic outlook, which is underpinned by sustained strong population growth (graph 2).
With more people looking for work in November, the wage growth of permanent employees decelerated to 3.9% y/y from 4.9% in October (graph 3). While still well above the most recent inflation print, it’s the slowest advance in wages since April 2022. That will be welcome news for the Bank of Canada, as its most unreliable measure of wages is finally starting to track closer to its more reliable indicators. But with job gains concentrated in full-time, public-sector hiring, our previous research External link. suggests some of that wage pressure may stick around for some time.
The sharply higher unemployment rate in November masks the strength under the hood of the Canadian labour market. With outsized hiring in the month, CPI inflation having advanced by 2% or less in the three months to October, and Q4 2024 real GDP growth tracking in line with the BoC’s expectations, we remain of the view that the Bank will cut by 25-basis points next week. That’s in contrast to the expectations of markets and economists following the November Labour Force Survey release, which have moved more heavily toward a 50-basis point cut at the December rate announcement. We expect the December rate cut to be followed by five more cuts of the same size in 2025.