Canadian employment fell for a second consecutive month in July, but the unemployment rate held steady at a historic low as more people leave the job market.
The economy shed 31,000 positions last month, after a decline of 43,000 in June, Statistics Canada said in a report on Friday. Financial analysts on Bay Street were expecting a stronger return of 15,000 jobs added. Despite the decline, the unemployment rate remained at 4.9 per cent – the lowest in nearly five decades of data.
“We’ve definitely shifted gears to neutral,” said Brendon Bernard, senior economist at job-search site Indeed Canada.
While the labour market in Canada is stalling, the United States is experiencing a surge. U.S. employers added 528,000 jobs in July – far more than expected – and the unemployment rate fell to 3.5 per cent, the lowest in half a century. The figures bolster the case that the United States, despite two quarters of economic contraction to start 2022, is not mired in a recession.
With the latest hiring binge, U.S. employment has returned to prepandemic levels, a milestone that Canada reached in late 2021.
The Canadian economy faces mounting headwinds. With inflation running at multidecade highs, the Bank of Canada is rapidly increasing interest rates to curb demand and tamp down price growth. The shift in borrowing rates has materialized quickly in real estate markets, where sales have plummeted from robust levels a year ago. Economic growth is slowing, raising fears the country will slip into a recession.
Even so, many companies struggle to find employees, and that’s showing up in wages that are growing more quickly of late. After Friday’s report, several analysts said the Bank of Canada was unlikely to stop raising interest rates, despite the loss of momentum in hiring and weakening economic growth.
“The Bank of Canada will likely focus on the historic low unemployment rate and still strong wage growth to justify another non-standard rate hike at its next meeting,” which is in September, Andrew Grantham, senior economist at CIBC Capital Markets, said in a note to investors.
Friday’s report showed job losses that were highly concentrated. The number of public-sector employees fell by 51,000. Ontario shed about 27,000 workers. And the losses were entirely in service industries, such as wholesale and retail trade, health care and education.
“What’s not entirely clear yet is whether the pullback in jobs is due to a lack of demand for workers – a slower economy – or a lack of supply of workers,” Bank of Montreal chief economist Doug Porter said in a note to clients.
On the demand side, there are conflicting signals. Some high-profile companies are cutting jobs or suspending their hiring plans, citing the economic slowdown and rapidly increasing interest rates. Shopify Inc. said last week it was laying off about 10 per cent of its work force, largely because e-commerce sales aren’t growing as quickly as projected.
However, layoff rates in the broader economy have been subdued this year, Mr. Bernard said. Furthermore, some companies aren’t tapping the brakes on expansion, despite economic risks.
“We need to continue hiring, we need to continue investing,” Jean Paul Chauvet, the chief executive officer of technology firm Lightspeed Commerce Inc., told investors on a call on Thursday.
Employers were recruiting for about one million positions in May, near all-time highs, according to Statscan. More recently, the volume of job listings on Indeed has faded, but is still substantially higher than before COVID-19. It’s “not a dramatic shift in employer hiring appetite, more so an easing,” Mr. Bernard said.
A concern for companies is that the supply of workers is dwindling. The labour force participation rate – the proportion of people either working or searching for a job – has fallen to 64.7 per cent in July from 65.3 per cent in May. Participation rates have fallen in all age brackets.
With a tight supply of workers, wages are growing at higher rates – although not as much as inflation. In July, the average hourly wage rose 5.2 per cent on an annual basis, matching the rate in June. Consumer prices grew at an annual rate of 8.1 per cent in June, the highest in nearly 40 years.
Mr. Bernard cautioned against drawing a close link between two months of declining employment and macroeconomic concerns – at least for now.
“Uncertainty in the macro environment definitely has the potential to really hit the job numbers,” he said. “If that happens, we’d start to see it more in the unemployment rate. We just haven’t seen that yet.”
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