Canadian employment little changed in February but unemployment rate held steady

By Nathan Janzen

The Bottom Line:

The February labour market data was broadly in line with expectations – there are early signs that the intensification of uncertainty from U.S. tariff threats, and pull back in measures of business confidence, had an impact on hiring on the more trade-sensitive goods producing side of the economy, with offsetting growth in more domestically focused services jobs.

On its own, the improvement in Canadian economic data (upside surprise in Q4 GDP growth, unemployment rate still below its peak late last year, and upside inflation surprises in recent months) would probably be enough to warrant a pause in the BoC’s rate cutting cycle next week. But those positive developments are being overshadowed by escalating U.S. trade threats. The reported one-month reprieve from tariffs for USMCA compliant trade will help, but more trade uncertainty is in the pipeline including steel and aluminum tariffs set to kick in next week and ‘reciprocal’ tariff announcements to follow in April. We expect next week’s interest rate decision could still be impacted by news flow into early next week and will be a close call.

The Details:

Employment was little-changed in February (+1.1k) on relatively soft underlying details – a 20k drop in full-time work offset by a 21k increase in part-time jobs.

The unemployment rate held steady at 6.6% after falling over December and January from a 6.9% recent peak in November. The steady unemployment rate was due to a 16k pullback in the labour force as the participation rate edged lower and population growth continues to slow (+47k in February)

Actual hours worked plunged 1.3% — the largest one-month drop since 2022 — but largely because of bad weather. The survey reference week coincided with major snowstorms in parts of Canada. Statistics Canada reported that 429k employees lost work hours due to weather (~4 times more than the average of the prior 5 years.)

On an industry basis, hiring in the goods sector ticked lower, including a 5k pull-back in the heavily trade-exposed manufacturing sector. But that still only partially retraced a surge in jobs over the prior two months. Transportation services (also heavily trade-exposed) fell by 23k but with offset from a 51k surge in more domestically-focused wholesale and retail jobs.

Wage growth ticked higher, to 3.8% (year-over-year) from 3.5% in January.

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By Nathan Janzen

    The Bottom Line:

    • Canadian labour markets surprised broadly on the upside for a second straight month in January, with employment rising solidly and the unemployment rate unexpectedly slipping lower.
    • It is probably too early to give labour markets the all clear — the unemployment rate is still up almost a percentage point from a year ago and wage growth slowed to its lowest year-over-year rate since May 2022. But the unemployment rate may be closer to peaking (or have peaked) earlier than feared.
    • The BoC signaled following their January rate cut that further reductions would be contingent on economic data continuing to look soft so another round of firm looking labour market data reduces the urgency for the BoC to cut again in March. Still, interest rates are at relatively high levels relative to a soft economic backdrop, household spending has shown signs of picking up, but business spending is still very soft. There remain significant risks that U.S. tariffs could be announced before the March policy meeting, and another round of labour market and inflation data still to be released before then.

    The Details:

    • Canadian employment jumped 76k in January, building on the 91k jump in December and with broadly firm underlying details.
    • The unemployment rate edged down to 6.6%, down from 6.7% in December and 6.9% in November.
    • The drop in unemployment was despite another large jump in the labour force (61k) due to another large population increase (56k) and an increase in the labour force participation rate.
    • Canadian monthly labour market data is highly volatile, but the 3-month average of the unemployment rate held steady for the second straight month for the first time since spring 2023.
    • The employment gain was led by a 57k increase in private employment and was roughly split between full-time (35k) and part-time (46k) jobs.
    • Hours worked jumped 0.9% to build on a 0.7% increase in December.
    • Wage growth was a soft spot, moderating to 3.5% year-over-year, which is the slowest in 2 1/2 years. But that is not unexpected – wage growth has long been expected to slow given a higher unemployment rate (still up almost a percent from a year ago) and lower job openings.

By Nathan Janzen

    The Bottom Line:

    • The December labour market numbers are clearly firmer than expected, with headlines and details broadly better than feared. Still, the data is notoriously volatile, and the unemployment rate is still up almost a percentage point from a year ago and at its second highest level (outside of the 2020/21 pandemic) since 2017.
    • We continue to think it is unlikely that the broader uptrend in the unemployment rate has ended (the 3-month average rate continued to rise in December) with hiring demand (job openings) still running well below year-ago levels.
    • The Bank of Canada already flagged in December that with interest rates no longer clearly at ‘restrictive’ levels, and inflation running back around the central bank’s 2% target, the pace of rate cuts will be more gradual, and contingent on the evolution of economic data, going forward. We continue to expect that ultimately the BoC will need to cut the overnight rate to slightly ‘stimulative’ levels this year – below the 2.25% to 3.25% the BoC currently estimates as the likely range for the current neutral rate.

    The Details:

    • Canadian employment jumped 91k in December – the largest increase in almost 2 years and with relatively firm underlying details including a tick lower in the unemployment rate to 6.7% following a jump to 6.8% in November (from 6.5% in October)
    • The increase in employment was mostly from full-time work (+58k) and split between public (+40k, mostly from higher education and health care workers) and private (+27k) employment
    • Employment in transportation and warehousing bounced back 17k after a 19k drop in November that was attributed at least in part to labour disruptions in the earlier month. Manufacturing employment rose by 13k to partially retrace a 29k drop in November.
    • Hours worked bounced back 0.5% in December after falling 0.2% in November (earlier decline attributed at least in part to labour disruptions)
    • The one soft spot came from a pullback in wage growth to 3.8% (year-over-year) from 4.1% in November and 4.9% in October. The slowing in wage growth is not unexpected given falling job openings (still running well-below year ago levels) and higher unemployment.
    • Population growth showed further signs of slowing – the population aged 15+ rose by 67k in December, still higher than historically ‘normal’ rates, but the smallest increase since early 2023.

By Nathan Janzen

    The Bottom Line:

    • Details underlying the November labour market data were mixed but the rise in the unemployment rate (alongside a slowing in wage growth) should reinforce that interest rates are higher than they need to be to keep inflation at the BoC’s inflation target. Our base-case expectation remains that the BoC will cut the overnight rate by another 50 basis points next week.

    The Details:

    • Canadian employment continued to rise in November (+51k) but – consistent with broader trends over the last couple of years – not quickly enough to keep up with a growing labour force.
    • The unemployment rate jumped to 6.8% after dipping to 6.5% in September and holding at that rate in October. The rate is up a percentage point from a year ago and 2 percentage points from its lows post-pandemic lockdowns in 2022.
    • The unemployment increase was driven by another large increase in the population (+80k) but also a retracement of a 0.3 percentage point cumulative drop in the labour force participation rate over the prior two months.
    • Part of the volatility in labour force participation (and unemployment rates) in recent months has been tied to volatility in youth labour markets around a time of year when seasonal adjustment of those numbers is difficult. The typically more stable 25-54 year old unemployment rate has continued to grind higher through the fall, rising another 0.2 percentage points in November to build on smaller increases in each of the two prior months.
    • The rise in the unemployment rate continues to be driven more than “usual” by longer job searches for new entrants into labour markets (newcomers to Canada and new graduates) but permanent layoffs have still accounted for almost 40% of the rise since late 2022.
    • The employment increase in November itself was relatively firm – +54k full-time employment to offset a small part-time decline. Most of the increase came from public sector jobs (education and healthcare) with manufacturing employment down 29k. And hours worked declined 0.2%, although in part due to the impact of strikes.
    • But wage growth also slowed to 4.1% from 4.9% – we continue to expect the recent pace of wage growth will not be sustained with job openings (hiring demand) lower and the unemployment rate higher.

By Nathan Janzen

    The Bottom Line:

    • October marked a second straight month of headline labour market data that was better than feared – particularly the unemployment rate holding steady after ticking lower in September. But details were once again softer than headlines would suggest. Hiring demand has continued to slow with job openings falling and we continue to think the most likely near-term path for the unemployment rate is higher rather than lower.
    • We continue to think there is more urgency for the Bank of Canada to respond to a underperforming Canadian economy (and slowing inflation pressures) with larger and more interest rate cuts than other advanced economy central banks. Our base-case forecast assumes the BoC will cut the overnight rate by another 50 basis points in December.

    The Details:

    • Employment rose 15k in October – close to expectations and still running well below population growth (still elevated at 85k in October)
    • The unemployment rate, though, held steady at 6.5% after declining for the first time since January in September.
    • Details underlying headline employment and unemployment rate numbers were mixed.
    • Full time jobs rose by 26k (with partial offset from an 11k pullback in part-time work) and hours worked rose 0.3%.
    • The unemployment rate, though, only held steady thanks to falling labour force participation (to 64.8% from 64.9% in September and 65.1% in August) and a sharp pullback in unemployment among younger workers (20-24 year olds) that offset increases across other age groups.
    • Youth labour market data has been highly volatile, but unemployment rate for the core 25-54 year old cohort that makes up the bulk of the workforce has continued to grind higher, including another increase (to 5.6%) in October.
    • Wage growth rose to 4.9% from 4.6% in September, but wages lag broader economic conditions and lower job openings (which have still been falling) and higher unemployment rates continue to argue that growth in pay will slow going forward.
    • The three-month rolling average for the unemployment rate overall still hit a new post-pandemic high in October, and driven mostly by a tick higher in the share of unemployment coming from permanent layoffs.

By Nathan Janzen

  • Employment jumped by 47k in September and the unemployment rate unexpectedly edged lower for the first time since January (to 6.5% from 6.6% in August)
  • Full time employment jumped 112k with partial offset from a 65k drop in part-time work. But details beyond those headlines are substantially more mixed, and still consistent with a further underlying softening in labour markets.
  • Despite the favourable full-time/part-time job mix, total hours worked declined by 0.4% (consistent with still soft GDP growth trends)
  • The tick lower in the unemployment rate was driven by a drop in labour force participation among 15-19 year olds that may have reflected difficulties seasonally adjusting the data around the end of the typical summer jobs work period.
  • Overall population growth continued to run well in excess of employment growth at 110k, and the unemployment rate for 25-54 year olds (which make up the bulk of the labour force and should not be as impacted by summer seasonal trends) actually rose to 5.5% in September from 5.4% in August.
  • And wage growth showed further signs of slowing, easing to 4.7% from 5.1% in August. Pressure on wage growth should remain downward given persistently falling job openings, higher unemployment (even with the tick lower in September) and weak post-pandemic productivity growth trends.
  • Bottom line: Our own base-case forecast assumes 50 basis point cuts from the BoC to the overnight rate in each of October and December, and those moves would still make sense after today’s labour market data. Details behind the September job numbers were far more mixed than the headline employment and unemployment rate readings alone would imply. Hiring demand (job openings) have continued to move sharply lower, increasing the odds that the unemployment rate will continue to rise, and a pullback in hours worked leaves GDP growth in Q3 still tracking in line with our own 1.0% (annualized) forecast and well below the BoC’s latest 2.8% forecast from July. Combined with slower inflation, interest rates still look clearly higher than they need to be with a softer economic backdrop still leaving risks tilted to price growth slowing to below the BoC’s 2% target in the year ahead.

  • Employment was little changed in June – edging down 1k with a 3k drop in full-time employment offsetting a small 2k rise in part-time work. Hours worked declined by 0.4%.
  • But with population and labour force still surging that pushed the unemployment rate up to 6.4%, the highest reading outside of the pandemic shock since October 2017.
  • A large share of the rise in the unemployment rate is still coming from students, in part due to a softer summer jobs market. But the rate of monthly layoffs has also continued to creep higher, and was up 20% from a year ago in June.
  • Average hourly earnings remained firm, rising 5.4% from a year ago. Still, other wage measures derived directly from business payrolls (and typically viewed as a more reliable indicator) have been slower and are still running below the rate of inflation growth versus pre-pandemic levels.
  • The BoC will be watching the potential inflationary impact of wage growth closely, but slowing hiring demand and rising supply of unemployed workers means that wage growth is most likely to move lower.
  • Bottom Line: The dip in employment in June is small but layoffs are creeping higher under the surface. The unemployment rate is now up 1.6 percentage points from its post-pandemic lows (a larger increase than in some historical ‘recessions’) and a downtrend in hiring demand (lower job openings) has shown no sign of ending. The BoC will still be watching the next round of inflation data and their own Business Outlook Survey closely ahead of the next interest rate decision later this month (July 24th) but with interest rates still at restrictive levels, the bar to at least easing off the monetary policy brakes further in the near-term is lower. The June labour market data increases the odds that the central bank will cut rates in July.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.