The latest labor force data is good news for most workers, as wages increased while unemployment remained low. But economists warn that the tight labor market makes it more likely that the Bank of Canada will raise rates, which could slow economic growth and even trigger a recession.
The Canadian economy lost 43,000 jobs in June, marking the first drop in employment since January, according to Statistics Canada’s monthly release. Labor force survey. But unemployment also fell to a new record low of 4.9 percent.
In other words, fewer Canadians were looking for work in June, perhaps because they retired. The job loss was almost entirely due to a decline among workers age 55 and older, according to Statistics Canada. This was the first decline among older workers since April 2021 and was particularly driven by men ages 55 to 64.
“This is the busiest summer job market since 1969,” said David Macdonald, a senior economist at the Canadian Center for Policy Alternatives.
“For workers, this is generally good news.”
TD economist Rishi Sondhi noted in a Friday statement that almost all of the job losses were in part-time positions.
Sondhi said some of the details were encouraging, with the number of hours worked rising and unemployment falling further.
“A very tight labor market is driving higher wage growth, which will help offset the erosion of real earnings by inflation,” he wrote.
There was a decline in employment in the services sector, particularly in retail trade, as well as in health care and social assistance, educational services and information, culture and recreation. However, employment in the goods-producing sector, especially manufacturing and construction, helped offset that. Self-employment also fell.
With inflation continuing at an exceptionally high pace, wages saw a bigger boost in June than in previous months. Average hourly wages increased 5.2 percent year over year, compared to 3.9 percent in May and 3.3 percent in April.
The number of long-term unemployed returned to pre-pandemic levels for the first time, falling more than 11 percent to 185,000 in June.
Macdonald said this red-hot market makes it a great time to look for work, and rising wages reflect that, though they are still below the rate of inflation. However, he noted that some professions, notably nurses and teachers, are dragging down average salary increases due to provincial restrictions on salary increases.
“This has happened particularly in Ontario and Alberta, where they’re setting very strict limits … despite the burnout, despite the fact that these workers were on the front lines,” Macdonald said.
But for workers generally speaking, these are positive statistics, he said.
However, higher wage gains and a continued high rate of inflation make it more likely that the Bank of Canada will announce a 75-point rate hike overnight next Wednesday, which Macdonald worries could mean a recession in Canada’s future.
The bank’s overnight rate is a blunt instrument that can’t adjust the economy, Macdonald said, especially when many of the factors that influence inflation are completely out of his control, such as high gas prices and ongoing war in Ukraine.
RBC economists also believe that Canada is in a “moderate and short-lived” recessionwriting in a report Thursday that inflation, labor shortages and rising interest rates will result in a “moderate contraction” of the economy in 2023.
This will mean a higher unemployment rate, economists Nathan Janzen and Claire Fan wrote, but “at levels less severe than in previous recessions.”
“Although higher rates will restrain growth, they are necessary to control inflation and cool an overheated economy,” Janzen and Fan wrote.
Sondhi said TD still expects the Bank of Canada to take an aggressive rate hike next Wednesday, given low unemployment and wage growth.
“Policymakers are resolute in their determination to rein in inflation and prevent expectations from becoming further de-anchored. As such, we still expect them to go up 75bps at their next policy meeting on July 13.”
Meanwhile, in the United States, employment continued to grow above expectations in all sectors, coming close to recovering from the jobs lost during the first days of the pandemic, while the unemployment rate remained stable at 3.6 percent.
Wage growth in the US was just over five percent year-over-year, reflecting high inflation, where large rate hikes are also expected.
JOIN THE CONVERSATION