The CANADIAN PRESS
As Canada’s population continues to grow rapidly, rising unemployment signals the economy isn’t creating enough jobs to absorb a larger workforce. The labour market is softening as the unemployment rate rose for a third consecutive month, offering some evidence the economy is finally slowing down.
Statistics Canada reported Friday employment was little changed in July, falling by 6,400 jobs. Meanwhile, the unemployment rate ticked up to 5.5 per cent as the economy struggles to create enough jobs to match the pace of population growth.
The federal agency says job losses last month were led by the construction industry, while the greatest job gains were made in health care and social assistance.
May served as a turning point in the labour market: the unemployment rate rose for the first time in nine months. Prior to that, the unemployment rate was hovering at five per cent, just above the all-time low of 4.9 per cent reached last summer.
“We’ve seen a consistent increase in the number of people without a job in Canada, but people that are still in the labour force,” said James Orlando, TD’s director of economics.
Job vacancies have also declined, and Orlando says high population growth is helping the economy stay afloat as newcomers add to demand. So instead of high interest rates leading to outright job losses, Orlando says the unemployment rate is rising.
“When people come to Canada, even if they don’t get a job right away, they’re consumers, right? They’re looking for housing, they need to buy food, they need to buy clothes. And so they’re buying stuff within the economy. And that is a demand shock,” Orlando said.
“It’s putting a floor under the economy at a time when most people would have thought it would be contracting.”
With the central bank’s key interest rate now sitting at five per cent — the highest it’s been since 2001 — all eyes are on what it chooses to do in September.
Orlando says the economic outlooks suggests the Bank of Canada doesn’t need to raise interest rates again next month.
TD’s updated forecasts suggest the economy will continue to slow, pushing up the unemployment rate to 6.5 per cent in the fourth quarter of 2024.
“Every single day that goes by, more and more people are going to be impacted by the rising cost of housing, specifically on rising mortgage rates, and so it’s going to force a lot of people to adjust their spending habits,” Orlando said.
But with underlying price pressures and wage growth still high, economists say rates may have to stay high for long.
The central bank has also raised concerns about the pace of wage growth, noting rapid wage gains would make it challenging to get inflation back to target.
Orlando says wage growth is a “lagging indicator,” meaning workers are getting wage increases to reflect the rapid rise of inflation that already occurred. But falling job vacancies and rising unemployment suggest high wage growth won’t persist.
“These are the best indicators that you’re not going to get keep wages growing at this five per cent level going forward or into perpetuity, they’re going to ease based on the fact that the labour market is clearly loosening,” Orlando said.