Choose your settings
Choose your language
Economic News

Canada: August Job Gains Can’t Stem the Rise in Joblessness

September 6, 2024
Randall Bartlett
Senior Director of Canadian Economics

Highlights

  • Total Canadian employment increased by 22k jobs in August 2024, not far off the 25k expected by economic forecasters. The unemployment rate moved up two ticks to 6.6%, the highest level since May 2017 outside of the pandemic years of 2020 and 2021. Total hours worked edged slightly lower in August (-0.1%) but were still up 1.4% over the prior year. Table 1 summarizes key data points.
  • Our Q3 2024 forecast for real Canadian GDP growth of around 1% is well below the 2.8% annualized gain forecast in the Bank of Canada’s (BoC) recent Monetary Policy Report.

Implications

After shedding jobs in both June and July, August employment bucked the trend by making up that lost ground and then some. Job gains were concentrated in education services (+27k) and health care and social assistance (+25k). However, it was hiring of private employees (+38k) that offset weakness in public-sector hiring (-9k) and self-employed (-7k), albeit entirely in part-time positions. While August’s employment gain was welcome, it wasn’t nearly enough to keep up with population growth, helping to push the employment rate lower for the fourth consecutive month. And when combined with a slight uptick in the participation rate, the unemployment rate inevitably moved higher. While the increase in the unemployment rate was again concentrated among younger workers (ages 15 to 24 years), the jobless rate among core-aged workers (25 to 54 years) rose 0.3 percentage points in August, following three consecutive declines. Reassuringly, this wasn’t due to weaker hiring within that age category, which rose by 34k, but was instead driven by an increase in the participation rate.

Still skyrocketing population gains in August continued to be concentrated among younger workers (graph 1), reflecting the ongoing surge in newcomers to Canada. However, if the federal government is successful in reducing the number of non-permanents residents to 5% of the population over the next three years, that should weigh on real GDP growth nationally External link. and in all provinces External link., which has consistently declined on a per capita basis over the past two years. This should put downward pressure on inflation, supporting ongoing rate cuts by the Bank of Canada. If the federal government’s plan External link. is fully implemented, it poses a meaningful downside risk to the central bank’s economic outlook, which is underpinned by sustained strong population growth. 

Despite the torrid pace of population gains, permanent employees’ wage growth remains well above the pace of inflation, albeit the slowest year-over-year growth since April (graph 2). While this would normally be more concerning for the Bank of Canada, the Bank was quite sanguine about wage gains in its most recent interest rate announcement External link., stating that the “slack in the labour market is expected to slow wage growth, which remains elevated relative to productivity.” The Bank also puts by far the least weight on the Labour Force Survey as a measure of wage growth, instead preferring the National External link. and Productivity External link. Accounts. And in each of these cases, a rapid acceleration in public sector compensation is increasingly pushing wages higher, which we’ve previously highlighted External link. as having less relevance for monetary policy as it doesn’t reflect underlying labour market and economic conditions. 

In all, the ongoing slack in the Canadian labour market, expected muted Q3 real GDP growth print compared to the Bank of Canada’s most recent forecast and gradually slowing inflation point to a 25 basis point rate cut in October. This should be followed another in December, and likely six more in 2025. The question now is not if the Bank will continue to cut rates but if the pace of rate cuts will need to accelerate relative to our and market expectations. We’re not ready to commit to this yet, but the odds are tilting increasingly in that direction. 

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.