A Great Jobs Report? Meh!

Blowout jobs report in Canada? Not so fast. True, employment rose by 47,000 in September, besting the median consensus estimate of 27,000. Proportionally speaking, this beats the consensus forecast by even more than the latest US employment figures. The unemployment rate moved one tick lower to 6.5%, the first decline since January. But here’s the catch: This report shows a 110,000 increase in the population aged 15 and older—the fourth largest monthly population gain ever recorded.

What remains underappreciated is the fact that this massive population growth sets a much higher bar for any employment increase to meaningfully reduce job market slack. Unsurprisingly, this report fell short in that respect. The employment rate dropped again—now down 1.3 percentage points over the past year. The 15-to-64-year-old cohort, which excludes most retirees, saw a 7.3% year-over-year increase in non-participation, a record if we exclude the pandemic.

So Canada is not absorbing job market slack. This is a key distinction from the US, where the employment rate ticked up and the out-of-labour force working-age population has stayed flat as a pancake for the last 4 years. Moreover, hours worked in Canada fell by 0.4% in September, marking the third decline in four months, despite solid full-time job gains. Hours worked in the goods-producing sector dropped by 1%, with significant decreases in construction and manufacturing—two highly cyclical sectors, the latter of which faces increased uncertainty ahead of the US election. Consequently, our GDP growth estimate for the third quarter remains at 1.2% annualized, far below the Bank of Canada’s July forecast of 2.8%, which the Bank has since downplayed.

Other indicators that the Bank of Canada monitors offered little encouragement. The job-finding rate remains near pandemic-lockdown lows, and while job separations remain below pre-pandemic levels, the proportion of laid-off workers seeking jobs within the labour force has steadily risen since 2022. This trend bears watching as the macroeconomic stakes of previously laid-off workers unable to find jobs exceed those of recent newcomers, who add to unemployment counts but typically have smaller financial obligations. Regardless, it is not a good time to be unemployed in Canada, with the share of workers unemployed for more than 27 weeks jumping to a seven-year high of over 20%.

What have we learned about the job market outlook? Hiring intentions remain below average, according to the Bank of Canada’s Business Outlook Survey, and employers unsurprisingly report an abundance of applicants, though for job openings that no longer exist. This suggests that the notable slowdown in wage growth in September will persist.

And that’s what we ultimately take away: The new information received today was disinflationary, not inflationary. This is why we don’t see much ground to revise our call for a 50-basis-point cut at the Bank of Canada’s next meeting on October 23.