Canada’s jobs report offers mixed messages on rates

REAL ECONOMY BLOG | March 08, 2024

Authored by RSM Canada

February’s jobs report for Canada did little to sway the Bank of Canada’s likelihood to begin cutting rates in June.

The data released on Friday continues to send mixed messages to those who make monetary policy, a recurring theme for the past six months as the economy hangs on but does not grow.

The job market is tipping into an employers’ market as the unemployment rate climbed back up to 5.8%. Wage growth reached 4.9%, falling below 5% for the first time in a year, which signals more disinflation.

Lower labour demand dampens wage growth, as well as workers’ wage growth expectations. And when employers do not have to keep raising wages, they can keep price increases in check.

That said, the central bank might feel no urgency to cut rates faster as the economy added 40,700 jobs, exceeding expectations and a sign of remaining steam that could keep the economy afloat for a few more months. Of those, 70,000 were full-time jobs, fully offsetting a loss of 29,000 part-time jobs.

The job market is a mirror image of the economy as it is somewhat at a standstill: hiring has slowed, but layoffs are not prevalent. Instead, the main driver of rising unemployment has been population growth, which is outpacing job growth.

The unemployment rate is expected to surpass 6% this year. As Canada plans on welcoming half a million new permanent residents, population will continue to rise faster than jobs.

Population growth also outpaces employment growth, leading to the employment rate declining 0.1 percentage point to 61.5%. The employment rate fell for the fifth consecutive month, the longest period since 2009.

The services-producing sector continues to drive growth in a post-pandemic world by adding 46,900 jobs, especially in accommodations and food services (26,200) and professional services (17,900). The declines were in educational services (17,000) and manufacturing (13,900).

The youth labour force participation rate rose for the first time since December 2022, to 63.3%. Whether they are in school or not in school, youths choosing to enter the labour force can be a positive sign of optimism in the workforce, and in the economy.

International Women’s Day highlights

February’s jobs report also offers a reminder that the gender gap in the workplace remains, both in wages and in labor force participation.

There are currently 9.7 million women employed. Women account for 47.3% of the Canadian labour force.

The gender gap in Canada’s workforce remains persistent, with women on average earning lower wages and participating less. On average, women earned 0.87 cents for every dollar by men.

The core-age women’s employment rate reached 81.4% in February, above pre-pandemic levels but having fallen below last year’s peak.

The return-to-office trend might be hurting women in the workforce, as women tend to select jobs with more flexibility because of caregiving responsibilities. Sometimes, return-to-work mandates could force female workers to switch jobs, quit or drop out of the workforce entirely, as job openings become more scarce.

Industries that provide more flexible working opportunities to work from home or in a hybrid setting include professional services (60.6%); finance, insurance, and real estate (54.4%); and public administration (47.4%).

The takeaway

The job market continues to soften, but not sharply enough to hasten the Bank of Canada’s pace of rate cuts, which we expect to begin in June.

This article was written by Tu Nguyen and originally appeared on 2024-03-08 RSM Canada, and is available online at https://realeconomy.rsmus.com/canadas-jobs-report-offers-mixed-messages-on-rates/.

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