Thoughts

August 09, 2024 | 13:52

The Kids Aren’t Alright—Job Market Concerns

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Canada’s job market continues to soften, and it’s becoming clearer that we’re well past the point of worrying about excess demand, and should be more focused on preserving healthy conditions. The Bank of Canada is on board. While the July Labour Force Survey offered a random grab bag of positive and negative indicators, the bigger picture remains one of broadly deteriorating conditions. The 6.4% unemployment rate is up 1.6 ppts from the 2022 cycle low and 0.9 ppts in the past year, while the employment rate has plunged below 61%, matching the lowest level since 1999—the job market simply can’t absorb the influx of people, and hasn’t been able to for a while. We addressed some of the big-picture issues facing the job market recently in a piece titled Canadian Job Market: “We’ll Be in Touch”. Here, let’s drill further below the surface and look at where some of the biggest cracks have emerged.

Youth job market: Employment conditions for Canada’s youth are not good. The youth (15-24) unemployment rate rose to 14.2% in July, the highest non-pandemic reading in over a decade. By comparison, prime-age unemployment is up 0.4 ppts year-over-year. And, to cite StatCan, the unemployment rate for returning students was 17.2% in July, the highest non-pandemic rate for July since 2009 (i.e., a deep recession). Part of the challenge is that many service businesses went through a generationally-difficult shock during the pandemic and some dislocation persists; but it mainly reflects labour force saturation from historic immigration —namely lower-skilled temporary foreign workers and international students. Youth hiring has slowed (+0.2% y/y), and the participation rate has fallen. But before we start calling kids lazy, note that population in that cohort has exploded by almost 12% in the past two years (not a typo). No job market could ever be expected to absorb such an influx, and this one certainly isn’t either.

The private sector: Job growth in the private sector has stalled, and that’s concerning. Private-sector employment was up 0.6% y/y in July and 0.5% annualized over the latest 6 months, a sharp slowdown from earlier in the cycle. Headline employment has masked this weakness because the public sector keeps on hiring, with employment there up a massive 4.8% y/y. Outside of the post-pandemic rebound, that’s among the strongest rates of public-sector hiring on record back to 1976. Since the end of 2016, public administration specifically has grown at a 3.6% annualized pace, more than twice that seen in the private sector. In other words, there are structural and cyclical factors at play here.

Cyclical pressures: Industries typically considered more at the mercy of the economic cycle are exhibiting more hiring weakness. Notable examples include manufacturing, construction and trade, where employment is down a combined 2% y/y. For what it’s worth, declines of that magnitude have only been seen in recession, with these industries typically exhibiting earlier weakness. Meantime, the Canadian job vacancy rate continues to fall, with these and other cyclical sectors now posting rates below 2019 levels.

This should all keep the Bank of Canada on an easing path.