OTTAWA – The Canadian economy added more jobs than expected in August, but most forecasters still believe the Bank of Canada is done raising interest rates as overall trends in the economy point to a slowdown.
Statistics Canada reported Friday the economy added 40,000 jobs last month – double the consensus expectation from economists.
The employment gain was just enough for the jobless rate to hold steady at 5.5 per cent, ending a three-month streak of rising unemployment.
“Canada’s job market has been following a sawtooth pattern this year, with a soft report generally followed by a snapback, and this was the month for a minor snapback,” said BMO chief economist Douglas Porter in a client note.
The decent job report bolsters financial markets’ expectations that rate cuts are not imminent.
Nevertheless, economists tend to focus more on trends in the economy, rather than one monthly report.
“You can never just solely focus on one of these employment numbers, because they are so volatile,” said Andrew Grantham, CIBC’s director of economics.
“The underlying trend that we’re seeing over the last three to six months is still one that employment is growing … but we are falling short of the growth in the population.”
The federal agency said Canada’s strong population growth means higher monthly job gains are needed to keep the unemployment rate steady.
The monthly labour force surveys show Canada’s population has been growing by an average of 81,000 people every month this year. That pace of growth requires job gains of about 50,000 each month to keep the unemployment rate steady, said Statistics Canada.
The report shows employment increased in professional, scientific and technical services as well as construction. Meanwhile, jobs were shed in education services and manufacturing.
Although the job gains last month mark a slight rebound in the labour market, details in the report suggest employment opportunities are not as plentiful today.
The federal agency said the job-changing rate – which represents the percentage of workers who switch jobs between months – has fallen from the peak reached in January 2022.
It’s also taking unemployed people more time to find a job compared to a year ago, as job vacancies fall.
The latest jobs reading comes days after the Bank of Canada opted to hold its key interest rate at five per cent, prompted by recent data that signaled the economy is taking a turn: the latest gross domestic product report showed the economy shrank in the second quarter.
The labour market had also eased in recent months as job vacancies fall and the unemployment rate sits higher.
But the central bank is still concerned about stubbornly high inflation and wants more confirmation that growth is stalling, including in the labour market.
Governor Tiff Macklem warned in a speech on Thursday that although rates didn’t rise this week, the central bank hasn’t ruled out more rate hikes down the line.
Friday’s job report did little to ease the central bank’s wage growth concerns, as wages rose 4.9 per cent on an annual basis, down from 5.0 per cent the previous month.
Grantham said it’s difficult to judge how much of the strong wage growth is driven by a tight labour market, versus worker demand for wage increases to reflect the runup in inflation.
“I think we’re still seeing a lot of that in terms of the wage figure, that this is a lot of pass through from last year’s strong inflation numbers, rather than necessarily, that the labour market is very, very tight at the moment,” Grantham said.
But that strong wage growth isn’t expected to last forever, given labour market conditions are expected to continue loosening.
CIBC is forecasting the unemployment rate will rise to about six per cent in the first quarter of 2024.
Grantham said a substantial rise in the unemployment rate is likely the benchmark for interest rate cuts.
“I do think that if we see an unemployment rate sustainably above six per cent, that’s when they would start to gradually cut interest rates. And we expect the first interest rate cuts to come in the second quarter of next year.”
This report by The Canadian Press was first published Sept. 8, 2023.
