Canada job gains double expectations, wages accelerate

Randy Thanthong-Knight, Bloomberg News

Canada’s labour market blew past expectations and wages rose faster, signaling there’s still some gas left in the jobs machine even as the economy gears down.

The country added 40,000 jobs in August, while the unemployment rate held steady at 5.5 per cent following three straight monthly increases, Statistics Canada reported Friday in Ottawa. The figures beat expectations for a gain of 20,000 positions and a jobless rate of 5.6 per cent, according to the median estimate in a Bloomberg survey.

Rising workers’ compensation reflects some remaining tightness in the labour market, with wages accelerating to 5.2 per cent, beating expectations for a 4.7 per cent gain and up from 5 per cent a month earlier.

The Canadian dollar extended gains and Canada two-year yields rose to fresh session highs, topping through 4.62 per cent, after the report. The loonie traded 0.5 per cent stronger at 1.3613 against the U.S. dollar, outperforming many peers in the Group of 10 currencies.

Still, the data suggest the jobs market is looser than it was last year. Population growth outpaced the increase in employment in August and the employment rate fell 0.1 percentage point to 61.9 per cent. That’s the seventh straight month this year that population growth outpaced job gains.

Since January, employment has increased by 25,000 on average per month, while the population aged 15 and older grew by 81,000. Given this pace of population growth, monthly job gains of about 50,000 per month are required for the employment rate to stay constant.

The August data shows an economy that’s still churning out jobs even amid higher interest rates, albeit at a slower pace than its potential given the backdrop of record-high population growth. Governor Tiff Macklem and his officials held borrowing costs at five per cent on Wednesday, saying recent evidence suggests excess demand in the economy is easing. But wage growth remains a key concern.

Last month, total hours worked rose 0.5 per cent on a monthly basis, the fastest pace since February, and were up 2.6 per cent compared to a year earlier. That points to relatively strong economic momentum in the middle of the third quarter, when economists surveyed by Bloomberg expect gross domestic product to expand 0.7 per cent. Last week, preliminary data suggested gross domestic product was flat in July.

This is the first of two jobs reports before the next rate decision on Oct. 25. The majority of economists in a Bloomberg survey currently expect the bank to hold rates steady, and many see the bank already reaching its terminal point for rates this tightening cycle.

The involuntary part-time employment rate — another indicator of the balance between job supply and demand — was 18.9 per cent in August, up from 17.2 per cent a year earlier. That signals an easing of labour market demand.

Job gains were led by increases in professional and technical services, and construction. Some of the biggest decreases were in education services, manufacturing, and finance and real estate.

Employment rose in Alberta, British Columbia and Prince Edward Island, while it fell in Nova Scotia and was little changed in other provinces.

In Ontario, the population aged 15 and older grew by 45,000, accounting for nearly half of total population growth in the country. With little change in employment and an increase in the size of working-age population, the employment rate in the province fell 0.3 percentage points to 61.7 per cent.

With assistance from Erik Hertzberg and Anya Andrianova.

Economists weigh in on surprise August jobs gain

Iva Poshnjari, BNN Bloomberg 

The Canadian economy added double the number of jobs economists had forecasted for August, but strength reflected in the figure could be misleading, according to one economist – while others warned about inflation risks from accelerating wage growth.

Statistics Canada reported 40,000 jobs added in August, blowing past the 20,000 estimate from economists surveyed by Bloomberg.
 
Brendon Bernard, senior economist at Indeed, told BNN Bloomberg that rapid population growth helped carry the jobs figure higher – one reason he is hesitant to consider the figure an indicator of labour market strength.
 
“This isn’t to say that the 40,000 number isn’t strong, but what it’s saying is that we have to revise up what our baseline is for a solid jobs report when the population is growing so quickly, because more people means more potential workers,” he explained in a Friday interview.
 
The unemployment rate held steady at 5.5 per cent in August, following three straight monthly increases, according to Statistics Canada’s figures. The median jobless rate estimate from economists surveyed by Bloomberg was 5.6 per cent.
 
WAITING FOR WEAKNESS
 
Bernard cautioned that while the jobs data was positive, he is waiting for signs of weakness in to show in Canada’s labour market as the economy battles with inflation and an economic slowdown. 
 
“Another month where we’re kind of waiting for those cracks to show,” he said. 
 
Even with a higher-than-anticipated job gains, Bernard points out that the labour market is not as strong as it was a year ago. 
 
“I do think the Canadian labour market isn’t chugging like it was back in 2022 or (the first quarter) of this year,” he noted. 
 
He pointed to lack of productivity and a general economic slowdown for the dip – and he anticipates more labour market weakness ahead. 
 
“The underlying drivers are there to cause a deceleration,” he warned.

WAGE ACCELERATION 
 
Wage growth accelerated to 5.2 per cent in August, beating expectations for a 4.7 per cent gain and up from 5.0 per cent a month earlier, the data showed. 
 
James Orlando, director and senior economist at TD Economics, said rising worker compensation will complicate the Bank of Canada’s fight against inflation and weigh on the economy.
 
“When workers are demanding higher wages, businesses see those wages, they see their costs rising, they usually pass that onto consumers and that really is the source of inflation that we have right now in Canada,” he told BNN Bloomberg on Friday. 
 
“It makes the Bank of Canada’s job a lot harder and it risks that they need to raise interest rates even higher then they already have,” he added. 
 
Another economist agreed with Orlando’s wage growth concerns. 
 
“From an inflation control perspective, another acceleration in the growth in permanent employees’ wages is troubling,” Marc Desormeaux, principal economist at Desjardins, wrote in a note to clients on Friday. 
 
In addition to the growth in headline wages, (accurate?) other individual sectors saw wage growth reaccelerate last month, Desormeaux pointed out. 
 
WHAT DOES IT MEAN FOR THE BANK OF CANADA?
 
Despite the strong gains in job numbers and wages, Desormeaux does not think August’s labour force data will change the Bank of Canada’s plans at its October meeting, when he predicts the central bank will keep rates on hold again.
 
“Canadian consumers and businesses have yet to feel the full effects of prior hikes, and there is mounting evidence that economic growth and inflation are cooling,” he said.