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Marc Desormeaux
Principal Economist
Economic News
Canada: Resurgent Labour Market All but Assures July Rate Hike
July 7, 2023
Highlights
- Net total Canadian employment rose by 60k in June 2023, the largest monthly increase since January.
- A 110k surge in full-time employment dominated losses of part-time positions (-50k). All the gains were in paid work (+79k), with self-employment continuing its trend weakness.
- By sector, the strongest gains came in wholesale and retail trade (+33k) and manufacturing (+27k). Construction and education (both -14k) and agriculture (-6k) experienced the biggest losses.
- The unemployment rate rose by 0.4% to 5.4%—still close to a historic low—because labour force participation climbed 0.3% to 65.9%.
- Source population growth accelerated again to 3.14% (m/m, annualized) in June, a new record (graph). During the first half of the year, an unprecedented 442k increase in the working-age population has been recorded.
- Total hours worked were virtually unchanged in June but sat 2% higher than the same month in 2022.
- Average hourly earnings—tracked by the Bank of Canada to assess wages’ inflationary impacts—decelerated to 4.2% y/y. That contrasts with a rate over 5% in the prior four months and was the slowest reading since May 2022. In some labour-intensive sectors such as education and health care, wage growth has even fallen below 3%. The three-month annualized growth measures of seasonally-adjusted average hourly earnings are consistent with further deceleration in year-over-year measures, particularly in manufacturing and professional services.
- Ontario (+56k) accounted for most of the June hiring, while Nova Scotia and Newfoundland and Labrador also experienced meaningful gains following losses in the prior month. Quebec (-8k) witnessed net total employment losses for the third time in five months. In the case of Quebec, this result appears to corroborate government data which have suggested a doubling in the number of layoffs in the first half of 2023, relative to the same period last year.
Canada’s labour market provided another strong print to close out the first half of 2023. On the one hand, a solid uptick in hiring more than recouped the prior month’s losses. We suspected that May’s headline number was a head fake, and June data now appears to put to bed any notion that a significant economic slowdown is imminent. Moreover, the large increase in full-time hiring suggests a labour market that has yet to feel the full weight of sharply higher borrowing costs. That said, moderating wage gains are a more positive development for inflation control efforts.
Q2 2023 gains in Canada’s working-age population exceeded the already-torrid pace attained in the first quarter. We highlighted last week that the country witnessed its fastest total population expansion rate since the 1950s in Q1 2023, underpinned by non-permanent resident admissions. This puts upward pressure on consumer demand via the sheer number of arrivals and to the extent that these individuals are filling job openings built up during the pandemic. However, a surging population also means that labour supply is increasing. The Bank of Canada’s latest Business Outlook Survey suggested employers were encountering less difficulty hiring workers, and the job vacancy rate has been trending steadily lower. Continuation of that trend should ease labour market tightness and could help contain potential wage-push inflation over time.
Implications
With a full quarter of employment data, our tracking of Q2 2023 real GDP growth sits in the range of 1.5% to 2% (q/q annualized). That remains better than the 1% penciled in by the Bank of Canada in its last Monetary Policy Report.
The strong jobs print virtually assures another 25bp hike at the Bank’s next meeting later this month and keeps the door open for more increases going forward. For the time being, the central bank should see the vitality of the labour market and resilience of the overall economy as warranting another rate hike.
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