Canada’s economy printed what traditionally would be another blowout job report. Statistics Canada (Stat Can) data shows the country added tens of thousands of jobs in September, and wage growth is ripping higher. However, virtually every economist we heard from this morning warned the data has to be viewed with a different lens. To summarize their takes in words the average Canadian would understand, “that don’t impress me much.”
Canada’s Economy Added 60k Jobs, But That’s The Bare Minimum For This Rate of Population Growth
Despite warnings a slowdown of Canada’s economy is imminent, the country added thousands of jobs. Seasonally adjusted employment rose 64k jobs in September, following a 40k increase in September. It surprised the consensus estimate once again, but Canada’s top economists urged investors to examine the details.
“Historically, a gain of 60K jobs should translate into a decline in the unemployment rate, but the latter did not move an iota in September due to continued spectacular population growth,” explained Matthieu Arseneau, Deputy Chief Economist at National Bank of Canada (NBF).
Adding, “It is therefore important to revise upward the threshold for a good employment report. In fact, employment was barely above the pace that would be expected in the current context of explosive population growth.”
In short, Arseneau is emphasizing this may have been a blowout job report in a time like 2019. It would have been close to record to add that many jobs in the span of a month. Now with the population growing this fast, it’s the bare minimum to prevent market erosion.
The Devil Is In The Details With Canada’s Latest Job Data
BMO Chief Economist Douglas Porter also expressed concerns, primarily about the composition. “[employment gains were] well above expectations and yet another sign that the job market remains sturdy. Having said that, the details of the report were less impressive, as the gains were led by part-time jobs (+47.9k), and total hours worked actually dipped 0.2% in the month,” he explained.
Porter urged investors the headline number, typically used in media, was of little consequence. He stated, “There is little debate that the gaudy headline job growth overstates the strength of the labor market, juiced by a seasonal spike in education jobs and by surging part-time employment.”
RBC also expressed composition concerns, focusing on output and type of work. “Most of the job growth was in part-time positions (+48k) and actual hours worked outright declined by 0.2%,” explained the bank’s Assistant Chief Economist, Nathan Janzen.
He adds, “the employment increase was entirely concentrated in a 66k jump in educational workers – with Statistics Canada reiterating that employment counts in that sector can be volatile around the start of the new school year.”
School teachers get hired in September? One would think that’s in the seasonal adjustment models. Tony Stillo, Director of Canada at Oxford Economics also led with the teacher data.
“September’s job gains were largely due to a 66,000 m/m bounce back in educational services which offset a decline in August — monthly volatility that’s often seen at the start of a new school year,” said Stillo.
Canada’s Unemployment Rate Was Unchanged, But It Excludes The 43% Growth In Discouraged Workers
As NBF’s Arseneau highlighted, the number of job gains was just enough to prevent erosion. Canada’s seasonally adjusted unemployment rate spent another month at 5.5% in September. The unadjusted rate was 5.8% for the month, about 0.5 points higher than the same time last year.
We’ve previously explained the unemployment rate may not provide the details investors assume. RBC’s Janzen shared a similar note on the R8 unemployment rate, which includes the number of people who want a job but aren’t looking. These discouraged workers are quickly becoming a rising part of the economy.
He explained, “The number of discouraged workers (people not counted as ‘unemployed’ because they are not looking for work due to discouragement about job prospects) were up 43% year-over-year in September.”
Canadian Wage Growth Accelerates, Supporting Higher Interest Rates
Not all news was bad, and one of those areas is wage growth. The average hourly wage in September was 5% higher than last year. It accelerated from the 4.9% growth a month before, so wages aren’t just rising—they’re accelerating. We wouldn’t go so far as saying it was good news though, with the read being mixed.
RBC’s Janzen felt positive, feeling it demonstrated the strength of the economy. Stating, “….wage growth continues to rise strongly, pointing to a still firm underlying balance between labor demand and supply.”
Stillo had concerns about the inflationary pressure of such high growth. Inflationary growth means the gains will effectively be consumed by higher living costs, providing little relief to the worker and even less for the economy.
“This [rate of wage growth] remains too high for the Bank of Canada, but we expect ongoing loosening in labor markets amid continued strong population growth and job losses in the emerging recession will cause wage growth to slow sharply over the next year,” he said.
Canada’s Economy Is Strong Enough To Support Rates, But Recession Is Expected
Speaking of the Bank of Canada’s (BoC) read on the issue, that seems to be on everyone’s mind. The central bank will be watching the economy’s performance closely. Too strong and they’ll have to hike rates further. Too weak and they’ll have to cut. If the economy is just right and inflation is stable, they can just leave things alone.
Arseneau (NBF) believes the weaknesses far outweighed the strengths in the latest report. He sees labor markets weakening within the next 12 months and cooling wage growth. In addition, he points to the CFIB business survey that indicates labor shortages are easing, domestic demand is falling, and businesses plan to decelerate wage growth in the near future. “…which is good news for the wage pressures currently fueling inflation,” he explained.
Stillo doesn’t see the economy circumnavigating the iceberg it’s heading towards. He sees a moderate recession in the coming months, stating “We expect this will keep the Bank of Canada’s policy rate steady at 5% until mid-2024.”