People wait in line at the CNE job fair in Toronto on Aug. 2, 2023. CNE staff said 2023 had seen triple the number of online applications.Christopher Katsarov/The Globe and Mail
The Canadian labour market is continuing to weaken as an influx of job seekers struggle to find work, driving up the unemployment rate to multiyear highs.
The economy added 22,000 jobs in August, following small declines in June and July, Statistics Canada reported on Friday.
Still, this growth couldn’t stop the unemployment rate from rising to 6.6 per cent from 6.4 per cent in July. Excluding the pandemic, this is the highest jobless rate since May, 2017, and it has risen nearly two percentage points from a record low in 2022.
The Canadian labour market has been characterized by a particular trend of late: Employers have dialled back their hiring as they contend with much higher interest rates than a few years ago, but there is a strong infusion of job seekers via immigration.
Over the past year, employment has grown by 1.6 per cent for those 15 and older, while the population in the equivalent age bracket has risen by 3.5 per cent.
Also on Friday, the U.S. Bureau of Labor Statistics reported that the United States added 142,000 jobs in August and the unemployment rate fell a tick to 4.2 per cent. Still, employment was revised lower by 86,000 for the previous two months and job creation is noticeably weaker than in recent years.
To counter this softer trend, the Federal Reserve is widely expected to start cutting interest rates this month. Two Fed policy makers said on Friday that it was time to begin the easing cycle at the Sept. 18 decision.
The Bank of Canada trimmed its benchmark interest rate for a third consecutive time on Wednesday and reiterated that economic growth needs to pick up, while also flagging downside risks to the near-term outlook.
“The overall message from this report is that slack is building, very much keeping the Bank of Canada on an easing path, with a growing chance of a more forceful pace to those cuts,” said Doug Porter, chief economist at Bank of Montreal, in a client note.
Financial analysts were discouraged by many aspects of Friday’s report.
Job creation last month was entirely driven by part-time roles. The employment rate has fallen 10 out of the past 11 months. And the total number of hours worked in August edged down 0.1 per cent from July.
The Bank of Canada in July forecast economic activity to accelerate in the second half of the year, with real gross domestic product rising by 2.8 per cent annualized in the third quarter.
Desjardins Securities says growth is tracking about 1 per cent this quarter, based on early numbers. The Bank of Canada, which updates its economic projections at the October rate decision, says that growth needs to pick up so that inflation doesn’t fall below the 2-per-cent target.
Interest-rate swaps, which capture market expectations of monetary policy, were pricing in 150 basis points of easing by July, 2025, according to Bloomberg data on Friday. (A basis point is 1/100th of a percentage point.) That would take the Bank of Canada’s policy rate to 2.75 per cent.
Based on the swaps data, investors think there’s about a 40-per-cent chance the BoC opts for a larger half-point cut in October.
“We continue to see a significant chance that central bankers will need to lower the policy rate in October by 50 [basis points] to avoid falling behind the curve,” said Royce Mendes, head of macro strategy at Desjardins, in a note. “That said, with much data still to be released between now and then, it’s too early to change our official call.”
The job market has been especially tough for young people. The unemployment rate for youth (ages 15 to 24) rose to 14.5 per cent, the highest since 2012, excluding the pandemic.
The situation was even worse for youth who were returning to school this fall. On average from May to August, the unemployment rate for returning full-time students was 16.7 per cent. For returning Black students, the average jobless rate this summer was nearly 30 per cent.
For those people in the prime working ages of 25 to 54, the unemployment rate rose to 5.4 per cent in August from 5.1 per cent a month earlier.
“The only silver lining was that rising joblessness continues to be driven by new entrants not finding work rather than existing workers losing their jobs,” Mr. Mendes said. “Existing workers are the ones that tend to have high debt loads. So, at least for now, we believe there’s still a narrow path to a soft landing.”
Windsor, Ont., had the highest unemployment rate of Canada’s 20 largest census metropolitan areas at 9.2 per cent, followed by Edmonton at 8.6 per cent and Toronto at 8 per cent.
In August, 1.46 million people were categorized as unemployed by Statscan, an increase of 23 per cent or 272,000 people from a year earlier.