REAL ECONOMY BLOG | January 05, 2024

The Canadian economy is slipping into no-growth territory. In December, Canada lost 23,500 full-time jobs, replaced by a gain of 23,600 part-time positions.

Still, the mixed signals that dominated the latter half of last year have not given way to more unanimous signs of a stalling economy.

The unemployment rate remained steady at 5.8%, but underemployment is undermining both economic growth and productivity gains.

Since immigration tends to be slower in the winter months, the lack of job growth has not pushed the unemployment rate up.

The weaker-than-expected jobs report, released by Statistics Canada on Friday, might accelerate the Bank of Canada’s decision to reduce rates. But the hot wage growth of 5.4%, which accelerated from 4.8% in November and stands way above the inflation rate of 3.1%, does not ease concerns about sticky inflation.

Still, the lack of growth in jobs, consumer spending and the overall economy suggests that a rate cut in the second quarter is imminent to avoid a downturn that is deeper than needed.

While the American economy keeps adding jobs and is headed toward expansion as lower housing costs enable consumers to keep spending, it’s a different story in Canada, where job growth will be modest in the first half of the year.

In addition to the loss in full-time positions and the equivalent rise in part-time positions, more workers found employment in app-based ride or delivery services last year—evidence of underemployment.

This exacerbates Canada’s productivity challenge, as many of these workers have the potential to work in positions with higher productivity.

The labour force participation rate fell to 65.4%, the lowest of the year, though it was mostly because of a drop in youth employment. Among core-aged workers, the participation rate stayed consistently high at 88.7%.

The goods-producing sector lost 42,900 jobs while the services-producing sector added 43,100. Almost the entire gain was concentrated in professional, scientific and technical services, which added 45,700 jobs.

Health care also added 15,500 jobs, an encouraging trend amid the chronic shortage of talent in health care.

The strike in Quebec in December also resulted in fewer hours worked among teachers, nurses and other public-sector employees.

Throughout last year, employment among core-aged workers declined, mostly because of population growth from immigration. The majority of new immigrants are in this age group.

From January to December, the employment rate fell from the record high of 82.2% in January to 81.4% in December among core-aged women. For core-aged men, this number fell from a high of 88.2% in June to 87.4% in December.

The takeaway

In the months ahead, expect the unemployment rate to rise as businesses are squeezed by high interest rates and are forced to trim expenses and hold off on hiring. Some economic pain will persist until the Bank of Canada begins reducing the policy rate in the second quarter.

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