In November, Canada’s labor market showcased resilience with an addition of 25,000 jobs, surpassing expectations. However, the joy was short-lived as the unemployment rate climbed to 5.8%, marking the highest since January 2022. This article dissects the nuances of this economic anomaly, exploring sectoral struggles, economic indicators, and expert insights.
Sectoral Struggles
Finance, Insurance, and Real Estate
The finance, insurance, and real estate sectors witnessed an 18,000-job decline in November, extending a worrying trend since July. Major banks, including Toronto-Dominion, announced significant staff cuts, underlining challenges in these industries.
Job Cuts in the Banking Sector
The financial markets felt the ripple effect, with bonds falling and the Canadian dollar rising. The yield on the Canada 2-year benchmark note increased, signaling potential economic strains. Toronto-Dominion Bank’s decision to cut thousands of positions further emphasized the sector’s challenges.
Economic Indicators
Bonds, Loonie, and Economic Impacts
Bonds fell, and the Canadian dollar rose, reflecting the market’s response. The yield on the benchmark note increased, indicating concerns about economic stability.
Total Hours Worked: A Telling Decline
Total hours worked experienced a significant 0.7% monthly decline, the largest since April 2022. This decline not only points to weak economic momentum but also highlights the impact of higher interest rates on employment in rate-sensitive sectors.
Holiday Season Blues
Economic Momentum in Q4
Royce Mendes, head of macro strategy at Desjardins Securities, expressed concerns about the economy entering the holiday season on soft footing. Lagged impacts of rate hikes are expected to exert further pressure on the labor market, potentially leading to a rate cut in the coming quarters.
Effects of Higher Interest Rates
The pace of hiring lags behind the population-driven labor force expansion. Brendon Bernard, senior economist at Indeed, emphasized the discrepancy, noting that 25,000 job gains must be viewed in the context of a growing working-age population.
Expert Insights
Analysis by Royce Mendes
Mendes’s analysis underscores the soft economic foundation entering the holiday season. He predicts that ongoing rate hike impacts will contribute to labor market weakness, affecting inflationary pressures. The forecast positions the Bank of Canada for potential rate cuts in the second quarter of the following year.
Lagging Pace of Hiring
The pace of hiring struggles to match the population-driven labor force expansion. With a working-age population growth of about 78,000, the job gains of 25,000 highlight a significant lag, raising questions about economic vitality.
Wage Growth & Inflation
Steady Wage Growth
Wage growth for permanent employees held steady at 5%, exceeding expectations. However, this marks the fifth consecutive month at or above 5%, a level inconsistent with Bank of Canada Governor Tiff Macklem’s target for a timely return to the 2% inflation target.
Governor Macklem’s Concerns
Governor Macklem acknowledges the disappearance of excess demand and anticipates prolonged economic weakness. This expectation aligns with the governor’s stance that the economy will remain feeble for the next few quarters, potentially slowing the pace of price increases.
Economic Contraction
Third-Quarter GDP Shock
The jobs report follows the unexpected contraction of the economy in the third quarter. The 1.1% annualized pace decline nearly wipes out previous growth, reflecting challenges in sustaining economic momentum.
Impact on Consumption
The contraction in GDP is coupled with a flatlined consumption pattern, painting a grim picture of economic health. Policymakers are now faced with challenging decisions in light of these economic indicators.
Rate Decision Dilemma
Policymakers’ Last Key Input
The jobs data serves as the final input for policymakers before the rate decision on December 6. Forecasts suggest the central bank will maintain rates at 5%, potentially concluding the current tightening cycle. However, market and economic expectations point towards rate cuts in the first half of the following year.
Expectations for the Next Rate Decision
While the majority of forecasters anticipate unchanged rates, the prevailing economic challenges might push policymakers towards rate cuts in response to the broader economic landscape.
Ontario Cities: The Suffering
Unemployment Hotspots
Certain Ontario cities, including Windsor, St. Catharines-Niagara, and Oshawa, face the highest unemployment rates. St. Catharines-Niagara