June job losses raise concern about recession
Canada has reported the first job losses since January, raising concerns about a looming recession even with a growing economy.
The Canadian economy recorded its first monthly loss of jobs since start of the year in June, but the labour market continued to be exceptionally tight as the unemployment rate fell again and wages moved higher.
In its labour force survey released Friday, Statistics Canada said the country lost 43,000 jobs last month, but the unemployment rate fell to 4.9 per cent, the lowest level since comparable data started in 1976, and compared with 5.1 per cent in May.
The decline in the unemployment rate in June was attributed to fewer people looking for work, Statistics Canada said, while the loss in jobs was driven by a decline in self-employment by 59,000 jobs.
Lack of workers
For business owners, the drop in the labour force participation rate added to their labour shortage woes.
Mark Kitching, owner of Waldo’s on King bistro and wine bar in London, Ont., said he could hire two or three additional kitchen staff, but isn’t getting applicants.
“I talked to people in my industry and we’re all having the same problem,” Kitching said.
The vacancies at Waldo’s mean staff have to work overtime hours, which Kitching says makes it more expensive and stressful to operate.
Bank of Montreal senior economist Robert Kavcic said the job market still looks very strong after assessing some of the monthly noise.
June also saw a faster pace of wage growth, with average hourly wages rising 5.2 per cent year over year to $31.24.
Kavcic said previous wage growth numbers were lagging and didn’t capture “reality on the ground.”
“These numbers are now better reflecting conditions in the real economy,” he said.
In comparison to wage growth prior to the pandemic, June recorded the fastest growth since the collection of comparable data in 1998. However, the rise in wages in June was still below the most recent inflation rate of 7.7 per cent reported in May.
McGill University economics professor Fabian Lange said wages need to keep up with inflation to attract workers as businesses continue to struggle with hiring.
“Wage growth is going to be necessary, given how tight the labour market is,” Lange said.
“If wages don’t go up, then you’re essentially shifting income from the labour market to the firms that are selling products at higher prices.”
Wage growth was led by gains among non-unionized workers, who saw their wages go up by 6.1 per cent, while unionized workers experienced a slower rise in wages of 3.7 per cent.
Higher interest rates coming
The jobs report comes ahead of the Bank of Canada’s interest rate announcement and monetary policy report next week.
The central bank is expected to raise its key interest rate on Wednesday, with most economists predicting a hike of three-quarters of a percentage point.
A recent study from the Canadian Centre for Policy Alternatives warned rapidly increasing interest rates will likely send the Canadian economy into a recession and could cause significant “collateral damage,” including 850,000 job losses.
For now, though, CIBC chief economist Avery Shenfeld said the Bank of Canada wouldn’t be dissuaded from raising interest rates more aggressively, noting an increase of 1.3 per cent in hours worked and the decline in jobs being offset by lower labour force participation.
“On its own, the headline jobs decline isn’t yet convincing evidence of a slowdown that will deter the Bank of Canada from a 75 basis point hike next week,” Shenfeld said in an email.
Jobs in the services-producing sector declined by 76,000, erasing gains made earlier in the year. The largest decline in employment was in retail trade. The report said data over the next few months may help answer whether the decline was due to consumer behaviours changing as inflation remains high.