More signs of a cooling labour market, reinforcing our call for September rate cut

After the jarring market response to last week’s U.S. jobs report, everyone was on high alert for the Canadian numbers delivered today.

The Bank of Canada has indicated that, with inflation cooperating, it is becoming more focused on downside risks. That means watching the jobs data closely.

The report points to further signs of softening. The economy isn’t growing enough to consistently add jobs and absorb people looking for work.

Employment was largely unchanged (-2,800) for the second straight month. That’s well shy of market consensus (Bloomberg survey) of +25K.

The only reason the unemployment rate held steady at 6.4% was due to a decline in the labour force—the number of people (15+) working or looking for work.

The details show all the net new jobs were full-time, but entirely in the public sector. Over the last 12 months, part time employment (up 3.4%) has far outpaced full-time (1.4%). Meanwhile, the public sector (+4.8%) has outpaced private gains (+0.6%).

A falling job vacancy rate (latest from May) points to further signs of a cooling labour market.

Newcomers and youth are in particular finding it harder to find work. The youth (aged 15-24) unemployment rate rose to 14.2%, the highest since September 2012 (outside the pandemic years of 2020 and 2021).

Statistics Canada points to “a much more difficult summer job market for young returning students in 2024 compared with previous years.”

Among newcomers to Canada (landed in Canada within the previous five years) the unemployment rate was 12.6% (not seasonally adjusted, three-month moving average), up 3.1 percentage points from the same time last year.

The Bank of Canada has been watching wages closely—one of the main pressure points in the inflation battle. Average hourly earnings remain sticky, up 5.2% year-over-year.

Bottom line: This report reinforces our call for another 25 basis point interest rate cut in September. Slack has built up in the labour market and the economy is clearly in excess supply. It’s only a matter of time before persistent wage pressures start to relax. For the Bank to hold in our view, the upcoming inflation reports would need to show a reversal of inflation progress.

Alberta  - Jobs, unemployment rate hold steady

Alberta employment was largely unchanged (-0.6K) last month, following a 8.1K gain in June.

Digging into the details, a sizable gain in full time jobs (+46.4K) was offset by a dip in part-time positions (-47K), while small gains in the private and public sector were offset by lower self-employment.

At the industry level, modest gains in goods-producing industries mostly offset service sector declines.

There has been a notable pick-up in oil and gas, mining and forestry employment, reaching its highest level since January 2015. This coincides with stronger oil production in the province, lifted by new market access brought by the Trans Mountain Expansion.

Compared to last July, new private sector (+59K) and full-time (+43K) positions have accounted for the majority of net new employment (+54K).

Alberta’s year-over-year pace of job gains (2.2%) remains higher than the national average, but has slowed. Alberta has been adding jobs at a faster annual pace than the rest of the country since March 2022. But it needs to - just to keep pace with even faster labour force growth. New entrants to the labour market have come not only internationally, but from other provinces.

The unemployment rate held steady at 7.1% on a decline in the labour force participation rate which fell to its lowest since September 2023. Alberta’s youth unemployment rate was 14.3%, roughly at national average, and up 1.5 percentage points from the same time last year.

Bottom line: Employment growth has slowed in Alberta, and strong labour force entry continues to put upward pressure on the unemployment rate. However, the composition of annual job gains (mostly full-time and private sector) remains more favourable than national trends. With today’s report, we are now tracking 2.8-3% average annual employment growth for 2024 with an annual average unemployment rate of 6.8-7%. Our next forecast comes out in September.

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