EconoFACTS

September 28, 2023 | 09:31

Cdn. Payrolls Report (July) — Job Vacancies Sliding Down the Mountain

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)

There are more signs of softening in Canada’s labour market, this time in the payrolls report. While this report is a bit of old news (today’s release covers July), it provides important details on employment, job vacancies and wages.

Employment rose by 4.9k in July, or 2.5% y/y. For comparison, the timelier Labour Force Survey was up 2.8% excluding self-employment in the month. More notably, job vacancies continue to plunge, down 5.8% in July alone (-43k) and 28% in the past year (-274k). Recall that Canada had more than 1 million job vacancies at the peak in early 2022, effectively representing one job opening for every unemployed person in the country. Now, the level of vacancies sits at just over 700k. That leaves the job vacancy rate at 3.9% compared to the 5.7% high set last spring. While that’s still above pre-pandemic levels in the low-3% range, the excess demand is fading fast. Considering that these data are two months old, at this rate that excess demand might, in real time, already be mostly gone.

That said, there’s little evidence that wage growth is cooling. In fact, the fixed-weight measure of wage growth in this report accelerated to 4.7% y/y from 3.9% y/y in the prior month. That’s still firmly in the “4% to 5% range” that the Bank of Canada has described as too hot. For the record, average hourly earnings in the LFS similarly sat at 4.9% y/y as of August. Of course, wages are a slow-moving train that take time to change direction once they get going. Think of the ongoing negotiations and work stoppages now as contracts come to renewal, following three years of inflation and job-market tightness that didn’t exist when those were initially inked. That said, given plunging vacancies and an unemployment rate that, while still low at 5.5%, is up 0.6 ppts from the cycle trough, wage pressure should ease through 2024.

The Bottom Line: There is more evidence that Canada’s job market is softening, albeit from extreme levels. It’s still premature for this to feed into wages and, therefore, inflation, so the Bank of Canada will remain on high alert. But, it does suggest that the Bank might be able to keep leaning on the economy and inflation with rates at current levels.