In July, Canada experienced subdued hiring, resulting in the jobless rate rising for the third consecutive month. This is the first time such a streak has occurred since the early stages of the pandemic.
The softening of the labor market will likely provide some reassurance to the central bank, as it seeks evidence that its rate hikes are effectively impacting the economy. However, an increase in wage growth during the month may temper this comfort.
According to Statistics Canada, the number of employed working-aged individuals decreased by 6,400 in July compared to the previous month. Consequently, the unemployment rate rose by 0.1 percentage point to reach 5.5%. The consensus among economists had predicted an increase of 25,000 jobs in July, making the reported unemployment rate in line with expectations.
This employment stagnation follows the creation of approximately 290,000 jobs in the first six months of 2023, which contributed to maintaining a low unemployment rate by historical standards. However, in recent months, the rate has slightly increased from its previous record low of 4.9% last summer. The current jobless rate stands at its highest level since January 2022 when it was recorded at 6.5%.
When applying U.S. Labor Department methodology, Canada's unemployment rate in July was 0.3 percentage point higher at 4.7%.
Although the Canadian economy has exhibited relative resilience throughout 2023, experts predict a cooling-off period after more than a year of interest rate increases by the Bank of Canada to combat inflation. In their last meeting, officials decided to raise the policy rate by a quarter point, bringing it to a 22-year high of 5%. This decision was driven by stubborn underlying inflationary pressures and strong consumer spending on services fueled by population growth, accumulated pandemic-era savings, and pent-up demand.
The Bank of Canada's next monetary policy meeting is scheduled for September.
Central Bank Forecasts Inflation Above Target
The central bank forecasts that inflation will remain around 3%, which is one full point above its target, for the next year, even as economic growth begins to moderate. The average hourly wage growth, a key indicator for inflationary pressures, increased to 5.0% in July after easing to 4.2% the previous month. Despite weak productivity growth, wages have been steadily growing between 4% and 5% for about a year.
The total hours worked remained essentially unchanged in July, while the proportion of working-age Canadians who were employed decreased by 0.2 points to 62%. The labor-force participation rate, which measures the proportion of the working-age population who were employed or unemployed, also saw a slight decline of 0.1 point to 65.6%.
Modest Changes in Job Market
According to the latest report, there were only modest gains in full-time employment, with an increase of 1,700 jobs from the previous month. However, part-time jobs saw a decline of 8,100. The construction industry experienced a significant fall, leading to an overall decrease in employment. On the other hand, industries such as health care and social assistance showed an increase in employment.
Self-Employment and Public/Private Sectors
The report highlighted a decrease of 5,000 self-employed individuals in July. Additionally, the number of private-sector employees declined by 0.1%, while the number of public-sector workers increased by 0.4%, according to Statistics Canada.
Overall, the employment landscape is experiencing mixed results, with some sectors facing declines while others are growing. The central bank's forecast of higher inflation poses potential challenges for the economy in the coming year.