August 05, 2022 | 09:19
Canadian Jobs: Even Stranger Things
Canadian employment fell 30,600 in July, following a 43,200 pullback in the prior month, although the unemployment rate held at a five-decade low of 4.9% and wages stayed firm at 5.2% y/y. July's jobs drop is a bit more notable than the quirky June setback, as the declines spread to both private and public sector employment (June's drop was entirely due to fewer self-employed workers), and even full-time jobs dipped (-13k). 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. The latter view is supported by a drop in the participation rate, which dipped a further two ticks to 64.7% after dropping four ticks in June. Even the 15-64 group saw a big three-tick pullback in participation to 79.1%, after reaching a record high 79.7% as recently as March.
The softness in Canada's jobs is particularly notable when stacked up against the robust U.S. gains last month—but note that Canada's jobs rebounded much more quickly initially (despite a much slower re-opening). U.S. payrolls only just returned to pre-pandemic levels in July (and the household measure isn't quite there yet), while Canadian employment is still more than 2% above pre-COVID highs.
Reinforcing the view that some of the softness in jobs also reflects a slowing economy is that total hours worked also fell 0.5% m/m. Still, this followed a big rise the previous month, so July was still above the average Q2 level, pointing to a modest gain in the current quarter—consistent with our view of 1% GDP growth in Q3.
Industry movers: Most of the weakness was in the public sector, headlined by big losses in health care (-22k) and education (-18k). Private sector losses were also in service industries, with retail & wholesale trade (-27k) and building services (-12k) the notable laggards, while construction and manufacturing both punched out modest 7k gains.
Regional snapshot: The biggest setback was in Ontario (-27k), with the losses spread across many sectors. Four other provinces reported job losses in the month, although none were large in absolute terms; the same could be said for the five job gainers. After posting massive drops in unemployment rates in June, Atlantic Canada mostly reported a moderate back-up in July, with Newfoundland & Labrador nudging back up into double digits (10.2%). At the other end of the spectrum, Manitoba posted the lowest rate (3.5%), with the rest of the West and Quebec all below the national average.
Bottom Line: Canada's job market is clearly losing momentum in a hurry, likely due to both a marked cooling in the broader economy but also because a lack of available workers. The downward drift in the participation rate, especially for the 15-64 group, is worth watching closely, with the potential to tighten the labour market further. For the Bank of Canada, the takeaway will be that while growth is clearly cooling, conditions remain drum-tight and wages are stirring. We believe this backdrop is consistent with another rate hike at the September meeting, but of a less aggressive nature than the mega 100 bp move in July. We look for a 50 bp hike at that time.