The labor market is showing a loss of strength, with the first increase in unemployment in nine months in Canada.
Stable at 5% for five months, the unemployment rate rose slightly last month, to 5.2%, reported Friday Statistics Canada. This remains lower than the rate for the last month of May before the COVID-19 pandemic (5.4% in May 2019) and miles from the peak which was then to be reached, precisely, in May 2020 (14.1%). This is the first increase since the slight rebound last August (from 4.9% to 5.3%).
The slight increase in the unemployment rate in Canada reflects a modest decline in the number of jobs (-0.1%), particularly among the youngest, aged 15 to 24 (-2.8%), as well as in the total number of hours worked (-0.4%). But it is also explained by the strong demographic growth during the month (+83,000), explains Statistics Canada. In the last year, the population aged 15 and over grew by 660,000 people in Canada (+2.1%), thanks in particular to the rebound in immigration, and the labor market gained 365,000 jobs ( +1.8%), including 325,000 only between September and January.
The employment rate for young people aged 15 to 24 was significantly lower last month (57.6%) than a year earlier (59.6%), but comparable to the pre-pandemic average from 2017 to 2019 (58. 2%). The summer job season seems to be off to a particularly bad start, with the employment rate for students aged 20-24 a mere 63.8% in May, down from 69.5% a year earlier and 67.7% in May 2019.
Slight drop in unemployment in Quebec
In Quebec, the situation generally changed little for a fourth month in a row, apart from a very modest drop in the population looking for work. This translated into an equally modest drop in the unemployment rate last month, from 4.1% to 4%. It is therefore just above the record low of 3.9% reached in November and January.
The creation of 19,000 jobs last month allowed the greater Montreal area to reach this unemployment rate of 3.9% (-0.7 percentage points) for the first time since comparable data have been published, either since 2006, notes Statistics Canada. It thus compares favorably with the metropolitan areas of Toronto (6.5%) and Vancouver (4.9%).
Growth in the 12-month average hourly wage in Canada in May exceeded (+5.1%) the increase revealed by the most recent measure of the consumer price index, taken in April, which reported annual inflation of 4.4%. Quebec workers benefited from a gap almost as favorable, with an average wage increase of 5.4% in May compared to inflation of 4.8% in April.
“This wage growth can be explained by pressures between labor supply and demand, but not exclusively,” the Institut du Québec said on Friday in a brief analysis. In fact, it probably also reflects a shift of Quebec workers to sectors where wages are higher.
What will the Bank of Canada do?
This announcement of a slowdown in employment in Canada comes just days after the central bank deemed it necessary to resume raising its interest rates, fearing that the too strong economy would prevent it from bring inflation back to its target of 2%.
It’s still too early to predict whether the Bank of Canada will do it again with a rate hike at its next policy meeting on July 12, Royal Bank economist Nathan Janzen said in a brief analysis on Friday. In the meantime, she will be able to see other monthly statistics on employment and inflation, as well as the results of a survey conducted among businesses.
Faced with soaring inflation, the Bank of Canada raised its main monetary intervention tool from 0.25% to 4.5% between March 2022 and last January, before pausing. This pause ended on Wednesday with a further increase of 0.25 percentage point in its key rate, which took it to 4.75%.
“The job market finally lost steam in May, and we believe this is just the beginning, as the economy slides into recession,” predicted Michael Davenport, economist for the analyst firm Oxford Economics. But if signs of a much deeper economic slowdown don’t show in the coming weeks, the Bank of Canada will hike rates again in July, and possibly more times, he says.
The job market finally lost steam in May, and we believe this is just the beginning as the economy slides into recession
The latest data from Statistics Canada “confirms that the Quebec economy has lost its momentum since the beginning of the year,” observed Hélène Bégin, economist at Desjardins Group. “That said, the labor market remains overheated and wage growth remains sustained. »
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