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Surprise gain unlikely to bring Bank of Canada off sidelines on interest rates
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Employers hired more workers than expected in August, but the unemployment rate held steady due to a population increase of 103,000, so the surprise gain likely won’t bring policymakers off the sidelines when it comes to interest rates, economists say.
The labour market added 40,000 positions last month and the jobless rate remained at 5.5 per cent, according to Statistics Canada data released on Sept. 8. Economists surveyed by Bloomberg expected a gain of 20,000 new jobs and the unemployment rate to edge up to 5.6 per cent.
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Overall wages slightly pulled back, growing 4.9 per cent from a year ago compared to five per cent in July. Wages grew 5.2 per cent for permanent employees, but either measure is inconsistent with the central bank’s target of two-per-cent inflation, Desjardins economist Royce Mendes said.
“This report alone won’t make the Bank of Canada regret holding rates steady earlier this week,” he said in a note. “However, it does highlight that the economy hasn’t completely stalled.”
Policymakers cited a slowdown in economic growth in keeping the interest rate at five per cent when they met earlier this week. The Bank of Canada resumed hiking rates in June as economic indicators, such as consumer spending and inflation, proved more resilient than desired.
Economists forecast the central bank is done with raising interest rates, but it said it will leave the door open for further hikes if necessary.
A boost in Canada’s population is behind the flat unemployment rate figure, though it has increased 0.5 percentage points from April to July. The population grew by more than 100,000 in August, causing the employment rate — the proportion of the population aged 15 years and older who are employed — to fall by one percentage point to 61.9 per cent as the total size of the labour force increased.
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Since the beginning of 2023, the number of people 15 years or older has grown by a monthly average of 81,000, Statistics Canada said, meaning employment needs to grow by approximately 50,000 per month for the employment rate to remain constant.
“While August was for the most part a respectable month, it’s worth pounding home the point that Canada now needs a steady flow of jobs just to match raging population growth,” Bank of Montreal chief economist Douglas Porter said in a note. “Thus, it’s not inconsistent to see a sturdy monthly gain of 40,000 jobs and still conclude that the market is slightly easing.”
Hours worked were also higher last month, up 0.5 per cent on a monthly basis, the fastest pace since February, and up 2.6 per cent from August 2022. The increase in hours worked is an indicator of productivity and strong economic momentum heading into the third quarter.
Canada now needs a steady flow of jobs just to match raging population growth
Douglas Porter, Bank of Montreal
Statistics Canada also said more than one-third of people who worked multiple jobs indicated their main reason for doing so was to pay for essential needs, a higher figure than the 20.6 per cent in the same position just before the pandemic hit in March 2020.
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By sector, employment rose in professional, scientific and technical services, and construction, but fell in educational services and manufacturing.
The job-changing rate — the proportion of workers who remain employed from one month to the next, but who changed jobs — was 0.4 per cent in August, less than both the peak of 0.8 per cent in January 2022 and the average of 0.7 per cent between 2017 and 2019.
“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,” the agency said.
For those unemployed in July, nearly 60 per cent remained unemployed in August, suggesting it could be difficult to find jobs in the current market, Statistics Canada said.
The central bank will assess two more labour reports before it hands down its next interest rate decision on Oct. 25.
“We continue to expect that the central bankers are done raising rates,” Mendes said. “But with progress towards rebalancing the economy slow, they won’t be signalling ‘mission accomplished’ anytime soon.”
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Porter also said the jobs numbers “likely don’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,” he said.
• Email: bbharti@postmedia.com
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