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Marc Desormeaux
Principal Economist
Economic News
Canada: Despite a Surprise Jobs Spike, the Labour Market Continues to Rebalance
May 10, 2024
Highlights
- Net total Canadian employment increased by 90k in April 2024, a much stronger-than-consensus print following last month’s unexpected decline. The unemployment rate was unchanged at 6.1%, having trended upward since mid-2022. Table 1 summarizes key data points.
- This first data point of the second quarter slightly increased our Q2 2024 tracking of real annualized Canadian GDP growth to near 1.5%. Although that’s in line with the last Bank of Canada (BoC) estimate published in April, we’re still tracking an advance near 2% for Q1, which is below the latest BoC projection.
Implications
We often say that one month does make a trend, and today’s unexpected spike in employment emphasizes that point following the decline recorded in the prior month. Other details of today’s report were also positive. Full-time positions drove about half of the headline increase, private sector hiring jumped following several months of underwhelming results and the year-over-year rate of increase in hours worked accelerated versus March. Of course, these positive results also represent just one month of data, but their sheer strength easily offset the job losses recorded in the previous month, likely putting an end to talk that March would be a major turning point for Canada’s labour market.
From an inflation control perspective, further easing of wage gains is optimistic (graph 1). The BoC analyzes trends in permanent employees’ wages to assess the risk of wage-push inflation. That said, wage growth may not yet be compatible with the 2% inflation target as the central bank highlighted External link. in April.
Despite the jump in jobs this month, the labour market is loosening because the pace of employment growth has been so significantly outpaced by population gains for the better part of the last year (graph 2). The rate of Canada’s headcount increase stayed above 3% annualized for another record year-over-year gain.
Of course, decades-high headcount advances remain a tailwind for economic growth and possibly inflation, but this risk may be diminishing as well. Job vacancies are easing, lowering the potential for upward pressure on wages. And Ottawa’s plan to lower the temporary resident population External link. by 20% should reduce the primary driver of recent demographic gains as we progress through 2024.
We remain of the view that the BoC will begin reducing its policy rate in in June. Price pressures are easing, the labour market is loosening, and growth is so far coming in below the most recent Bank of Canada’s projections (with the economy contracting in per capita terms External link.). We think these indicators should prompt the central bank to adopt a less restrictive monetary policy stance at its next meeting, though the April 2024 inflation data set for release in two weeks will be key to solidifying that call.