Job seekers could soon face an ’employer’s market’ as unemployment rate rises

Canada’s employers are still hiring, but not enough to keep the unemployment rate from rising amid a rapidly growing population, Statistics Canada said Friday.

Experts say Canadian job seekers could be entering an “employer’s market” this spring as a slowing economy and growing labour pool means workers are losing some leverage.

StatCan said 41,000 net new jobs were added in February, driven by gains in full-time positions. The unemployment rate nonetheless ticked up 0.1 percentage points to 5.8 per cent as the labour pool continues to grow rapidly, the agency said.

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That offsets a drop of the same magnitude in the unemployment rate for January. The jobless rate has held at 5.8 per cent in the three of the past four months.

StatCan said employment gains were spread across industries in the services sector in February, driven by the food and accommodations industry, which added 26,000 jobs. The professional, scientific and technical services industry also saw gains, offset by losses in education and manufacturing.

Job gains have beaten economists’ expectations for the past two months.

Dawn Desjardins, chief economist at Deloitte Canada, says that while job creation is holding stronger than expected, any strength in the labour market is being dwarfed by the swelling workforce.

“Even though those job numbers look good – healthy – we do have a lot more people trying to work and that explains why we’ve seen the unemployment rate move back up,” she tells Global News.

Tu Nguyen, economist with RSM Canada, said in a release Friday that there are signs of cooling in the once-hot labour market.

Average hourly wages were up 5.0 per cent annually in February, down from the 5.3 per cent gains seen in January.

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Nguyen said that an easing in wage growth signals “disinflation” is in sight, as workers temper their requests for wages and employers feel less pressure to raise them. That can feed through into lower prices for consumers, she said.

A climbing unemployment rate and cooling in wages means Canadian job seekers might soon be entering an “employer’s market,” Nguyen argued.

Desjardins agrees. She points to a decline in job vacancies as evidence that businesses are not looking to expand their payrolls as the economy shows signs of slowing.

Two years ago, the labour market looked very different. Amid a record low unemployment rate, job seekers had the upper hand in many industries and were able to negotiate higher wages amid a lack of talent in the market.

Desjardins tells Global News that’s changing, as the influx of new workers to Canada means the supply of labour is outpacing demand, putting less upward pressure on wages and ramping up competition among job seekers.

“We look at that balance, it certainly has swung. And we do think that that’s going to continue to be the case,” she says.

The Bank of Canada has been watching for softening in the labour market and a cooling in wage growth as it gauges how long its benchmark interest rate needs to stay elevated. The central bank held its policy rate steady again on Wednesday and said it’s “too early” to cut rates.

Despite the modest job gains in the February report, Desjardins says the Bank of Canada can likely be confident that wage growth is going to continue to decline in the months ahead and inflationary pressures will come down with it.

“All of these things eventually will open the door to the Bank lowering that policy rate,” she says.

Andrew Grantham, senior economist at CIBC, said in a note to clients Friday morning that the February jobs numbers will do little to “speed the process up.”

“Overall, there is still evidence from today’s data that labour market conditions are loosening, but only very gradually and not in a way that demands an imminent reduction in interest rates,” he said.

Most economists are calling for rate cuts to begin in June at the earliest.

Money markets reflect around an 85 per cent chance of a rate cut in June and fully price a 25-basis-point cut in July, according to Reuters. Those bets did not change much after the release of the jobs report.

Both Nguyen and Desjardins agree that June remains the likeliest timeline for rate cuts to begin.

Desjardins says even when the central bank does start its easing cycle, the cuts to the policy rate won’t be as aggressive as the hikes were on the way up. She expects only three decreases in the policy rate in total this year, each only a quarter percentage point in magnitude.
South of the border, U.S. job growth also accelerated in February, but the unemployment rate increased to a two-year high of 3.9 per cent.

The Labor Department’s closely watched employment report on Friday also showed wages rising moderately last month. The jump in the unemployment rate after holding at 3.7 per cent for three straight months reflected a further decline in household employment.

The mixed report boosted the odds of the Federal Reserve cutting interest rates by June.

– with files from Reuters

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