Canada’s Softening Labour Market Still Suggests an End to BoC Rate Hikes

Hiring slowed in October while unemployment ticked higher, which may make the central bank more cautious about raising the cost of borrowing. 

Henry Hirschfeld 14 November, 2023 | 4:08AM
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Tiff Maklem

The Canadian job market cooled in October, as tight monetary policy and a growing population nudged labour supply and demand closer to balance. This may come as a relief to the Bank of Canada, which last week warned about “persistently higher” interest rates to bring down inflation.

In their July Monetary Policy Report, the BoC cited an overly hot labour market as one of the causes of Canada’s persistent inflationary pressures. As last month’s Labour Force Survey suggests, however, these pressures may finally be weakening.

  • The Canadian economy added 17,500 jobs in October, fewer than the 22,500 expected by analysts, according to Statistics Canada, and a significant drop from the 63,800 jobs added in September.
  • Average hourly wages edged up on a month-over-month basis by 0.2%, or 7 cents, to $34.08. In September, average hourly wages increased by 1.6%, or 54 cents.  
  • Canada’s unemployment rate rose to 5.7% from 5.5% the previous month. Analysts expected unemployment to rise to 5.6%, according to Statistics Canada.


Jobs Growth Continues to Slow

The pace of hiring slowed significantly in October, continuing a modest downward trend for jobs growth so far this year. In their most recent Monetary Policy Report, the Bank of Canada noted that “recent job gains have been below labour force growth and job vacancies have continued to ease.” In other words, Canada’s labour force population (the total number of working-age Canadians) has risen faster than the total number of job openings. Demographic changes have certainly contributed to the labour market’s cooldown this year, as Canada’s welcoming immigration policies boosted its population growth rate. But as the BoC describes in its note, weaker demand and higher borrowing costs, the results of tight monetary policy, have also weighed on business investment and limited hiring. 

Wage Growth Fell in October

Wage growth also eased last month, with average hourly wages increasing by 7 cents or 0.2% on a monthly basis. Compared to September, when wages grew by 54 cents or 1.6%, October’s numbers suggest a significant cooldown. The year-over-year measurements of wage growth confirm this trend, with average hourly wages rising 4.8% in October following an increase of 5.0% in September. Since wage growth tends to swing month-to-month, we took a three-month rolling average to identify long-term trends, which reveals a consistent deceleration in the first half of 2023. Although September’s surprising burst complicated the story, with the three-month rolling average leaping higher, October’s weaker gains suggest that wage growth will continue to trend lower. 

Unemployment Rate Returns to Normal

Unemployment ticked higher in October, rising to 5.7% from 5.5% in September. This marks the fourth monthly increase in unemployment since April, when the rate was at 5.0%. October’s numbers also confirm that Canada’s unemployment rate has returned to its pre-pandemic average. While the latest numbers may come as unwelcome news for Canadian workers, the Bank of Canada may interpret the uptick in unemployment as proof that their efforts to cool the economy are working. Understood along with the slowdown in jobs growth, higher unemployment indicates that the Canadian economy’s demand for labour is weakening. If labour conditions continue to soften, and core inflation measures continue to decline, the Bank of Canada’s aggressive campaign to raise borrowing costs may soon come to an end. 

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About Author

Henry Hirschfeld  Henry Hirschfeld is a Retirement Services Representative at Morningstar in Chicago. He holds a bachelor's degree in Spanish from Kenyon College.

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