REAL ECONOMY BLOG | November 03, 2023

More than a year and a half since the Bank of Canada began raising interest rates to cool the economy and tame inflation, the job market is feeling the effects.

The Canadian economy added 18,000 jobs in October, down from a gain of 63,800 in September, as the unemployment rate rose by 0.2% to 5.7%, according to data released by Statistics Canada on Friday.

The jobless rate has been on a slow uptick and is expected to hit 6% by the end of the year.
October’s job gains continued to be eclipsed by Canada’s population growth. This year, employment has grown by 28,000 a month on average as the population, fueled by immigration, has grown by 81,000 a month.

With financial conditions restrictive, businesses find it difficult to borrow and hire. Households, facing steep rises in mortgage interest rates and the cost of living, are curbing spending.

In this macroeconomic environment with uncertainty and adjustments on the path to price stability, some flip-flopping is expected where the economy adds a lot of jobs in some months and fewer in others.

But overall, cutbacks in household consumption and business investments translate to fewer jobs.

Those currently unemployed and those just entering the workforce are finding it more challenging to find work as labour demand eases. Even though companies are not going through mass layoffs, hiring freezes are becoming the norm.

Wage growth for permanent employees reached 5% on a year-over-year basis, still higher than what the Bank of Canada would like to see but it still is the first decrease in three months.

Wage growth has outpaced inflation since February, which makes it difficult for employers to hire, retain talent and still maintain profit margins, especially as consumers’ willingness to spend wanes.

And even though wage growth remains above inflation, Canadians are still having difficulty meeting prices that have been rising since early 2021. Statistics Canada reported that one in three Canadians found it difficult to meet their financial needs in October. The high cost of living is a significant factor in the slowing economy, as workers negotiate for higher wages.

The data

Both the goods- and services-producing sectors posted modest gains, with the goods-producing sector adding 7,500 jobs and the services-producing sector adding 10,000 jobs.

Construction had the most gains, with 23,000 jobs, reversing September’s loss. Overall, construction has lost jobs this year as rising interest rates mean fewer projects are started.

As Canada’s housing supply and public infrastructure are strained under the pressure of population growth, the cooling construction activity will add to the pressure.

Trade and manufacturing declined, by 21,700 and 18,800 jobs, respectively, suggesting slower economic activity globally. Demand from China has been sluggish in recent months, even as the American economy continues to beat expectations.

Information, culture and recreation also added 20,900 jobs as the industry is one of the few to remain resilient in a high-rate environment.

The takeaway

Combined with gross domestic product data this week, October’s jobs report showed that the Bank of Canada’s rate hikes are cooling the economy, and that no further rate increase would be required.

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