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Will Canada skirt recession? Jobs numbers show ‘clear signs of a soft landing’

Click to play video: 'Canada adds 40K jobs in August, unemployment rate remains stable'
Canada adds 40K jobs in August, unemployment rate remains stable
WATCH - Canada’s national unemployment rate was unchanged at 5.5 per cent in August amid a gain of 40,000 jobs, according to Statistics Canada. – Sep 8, 2023

Canada’s labour market bounced back in August, though signs of underlying weakness reveal the impacts of a slowing economy on Canadian job seekers.

The national unemployment rate was unchanged at 5.5 per cent in August amid a gain of 40,000 jobs, Statistics Canada said Friday.

Canada’s population growth outpaced job gains in the month, according to the agency.

Growth was led by the professional, scientific and technical services sector with 52,000 new jobs, and the construction industry bounced back with a gain of 34,000 positions. Gains here were offset by loses in educational services and manufacturing.

BMO chief economist Doug Porter said in a note on Friday that Canada’s jobs market has had a “sawtooth” pattern through much of 2023, with losses in one month typically made up with gains in another.

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The country’s rapid population growth tied to higher immigration levels means that Canadian employers must add jobs at a more brisk pace just to keep the country’s unemployment rate steady, Porter noted.

In that light, an increase of 40,000 positions in August could still be signs that the labour market is easing, he wrote.

Click to play video: 'Why Bank of Canada is keeping its key interest rate – for now'
Why Bank of Canada is keeping its key interest rate – for now

Brendon Bernard, senior economist at job search site Indeed, tells Global News that Canada’s rapid population growth over the past year means the “barometer” for employment needs to be recalibrated. While 40,000 jobs in a month might’ve been a strong number pre-pandemic, it’s barely enough to keep the unemployment rate from rising today, he says.

“To keep the labor market healthy when the population is growing so quickly requires jobs to grow at a really rapid pace,” Bernard says.

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RSM economist Tu Nguyen said in a statement on Friday that the August jobs numbers show “clear signs of a soft landing” for the economy.

A soft landing in economics refers to a slowdown that avoids a recession.

Nguyen projected that job growth will be “moderate” in the months ahead as high interest rates weigh on businesses, though she argued employers will likely keep hold of the workers they already have.

The jobs market had been showing signs of softening heading into last month, with the unemployment rate rising three consecutive months before August.

Bank of Canada watching wage growth

Carefully watching for signs of cooling in the jobs market is the Bank of Canada, which tracks unemployment and income growth as an indicator of where inflation could be heading.

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On Wednesday, the Bank of Canada decided to maintain its overnight rate at five per cent, but highlighted that it was watching for more moderation in wage growth in the months to come as it weighed whether rates would need to rise higher.

Click to play video: 'Bank of Canada may need to raise interest rates again despite this week’s hold: Macklem'
Bank of Canada may need to raise interest rates again despite this week’s hold: Macklem

Average hourly wages were up 4.9 per cent year-over-year in August, StatCan said, a slight cooling from the 5.0 per cent increase seen in July. Wage growth for permanent employees was up 5.2 per cent annually.

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The Bank of Canada pointed to signs of easing in the labour market among its reasons for holding interest rates steady on Wednesday, but highlighted that wage growth is still holding between four and five per cent annually. Governor Tiff Macklem said in a speech Thursday that while wage growth “hasn’t moderated much,” he expects these figures to slow as well in the months to come.

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Bernard also says he’s been expecting wage growth to slow down for a few months now, but figures have held steady even as other parts of the market such as job vacancies have cooled.

He says he still expects a slowdown here as employer demand recedes; job postings on Indeed are down 29 per cent today from their peak in January 2022, he points out.

Bernard also says that as price pressures ease — annual inflation was 3.3 per cent in July, down from the peak of 8.1 per cent in June 2022 — employers will bake less of a pay hike into their compensation packages.

Porter said that signs of underlying softness in the labour market means the August jobs report “likely doesn’t move the needle much” for the Bank of Canada.

“It’s not strong enough to prompt an immediate rethink on the pause, but it’s also certainly not soft enough to rule out further hikes,” Porter said.

Upcoming consumer price index reports on inflation will have more of an impact on the central bank’s next rate decision on Oct. 25, he added.

What a softer jobs market means for workers

Statistics Canada said Friday that there are signs in the labour force data that it’s harder for job seekers to find work.

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The proportion of workers remaining unemployed between July and August was higher compared to a year earlier, StatCan noted.

The job-changing rate, which refers to the proportion of workers who stay employed but switch positions month-to-month, was 0.4 per cent in August — down from a peak of 0.8 per cent in January 2022.

“A lower job-changing rate may indicate that workers are settling into jobs, or that the labour market has become less favourable to employees seeking new opportunities,” StatCan wrote.

Sandra Lavoy, regional vice-president at recruiting consultant Robert Half, tells Global News that slowdowns in workers taking on new jobs is part of a “complex” story unfolding in the Canadian labour market.

Canada’s labour market is “still one of the hottest markets” she’s seen at her three decades at Robert Half, with employers struggling to find specialized talent like accountants and software developers.

For Lavoy, the lack uptake in new jobs comes from a more selective workforce — job seekers who are looking for better quality of life standards with their work.

“The workforce community mindset has changed” since the pandemic, Lavoy says.

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A Robert Half survey of more than 1,000 Canadians back in May said that, of those workers who said they planned to change jobs in the next year, a majority (55 per cent) are motivated by a higher salary. But 28 per cent said they were looking mainly for better benefits and perks, while 26 per cent said they wanted remote work options.

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Workers are more willing to play the field and wait until they find a job that offers the right level of pay and “well-being perks” like health benefits and flexible working conditions, Lavoy says.

Employees still have leverage in today’s market to ask for these kinds of benefits, she argues, until a more severe downturn hits the economy and workers have to settle.

If employers do batten down the hatches and slow their pace of hiring ahead of a possible recession, Lavoy notes that workers who are unable to change jobs might still find some bargaining power outside of traditional wage asks.

Requests for more days working from home or for professional development opportunities — perks that don’t add much if anything to the company’s bottom line — can go over easier than asks for raises in a slower economic environment, Lavoy says.

— with files from The Canadian Press

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