February 23, 2024

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Employment Continues to Flatline but Hope of a New Year Soft-Landing Grows

3 min read
Employment Continues to Flatline but Hope of a New Year Soft-Landing Grows
  • In December, employment was unchanged, adding a final month to a quarter in which job growth in Canada flatlined. The unemployment rate remained fixed at 5.8 per cent.
  • Among the goods-producing industries, employment fell in construction, manufacturing, and agriculture. Meanwhile, in the service economy, notable growth occurred in professional, scientific, and technical services with smaller increases in other services (except public administration) as well as healthcare and social assistance. Among the services, wholesale and retail trade posted the largest employment decrease.
  • Across Canada, employment rose in four provinces. Gains were recorded in British Columbia (+18,000), Alberta (+6,700). Saskatchewan (+4,800) and Nova Scotia (+6,300). However, these were offset by a decrease in Ontario (-48,000). In the remaining provinces, employment was essentially unchanged.
  • Average hourly wage growth accelerated in December. On an annual basis, wages rose by 5.4 per cent, the fastest pace in over a year.

Key Insights

December’s LFS report ends a rollercoaster year that opened with a bang and closed with a whimper. This month’s numbers were predictably muted. Slow economic growth is weighing on employment gains. Looking ahead, we anticipate further weakness in the job market as hiring activity remains subdued. Both Canada’s job vacancy rate and our own Canadian Hiring Index are trending down. As the economic torpor continues, the risk of more layoffs is rising. In 2024, elevated borrowing costs will continue to constrain consumption and investment growth, weighing on demand for workers, particularly in the private sector. With international migration feeding labour force growth, we expect to see further increases in the unemployment rate over the first half of 2024.

The pendulum has swung in the labour market and today, the bargaining position of Canadian workers is considerably weaker than a year ago. As the labour market continues to slacken and inflation expectations among businesses and firms normalize, wage growth is expected to cool. A deceleration in wages will help to further tame inflation, by stemming the growth in labour costs for firms. If wage growth continues to run hot, in the absence of an improvement in productivity growth, the Bank of Canada may be forced to keep interest rates higher for longer. So far, minimal job losses and a relatively modest rise in the unemployment rate suggest that the prize of a “soft-landing” remains in touch. Although much progress was made in 2023 on the path to lower inflation, wages are an inflation risk that could spoil the party in 2024.

In 2023, Canada’s population grew at the fastest pace in over half a century. Driving this expansion were high levels of immigration and record inflows of non-permanent residents. However, the muted economic outlook, tighter financial requirements for international students and upcoming reforms expected to reduce access to temporary foreign workers should stem the inflow of temporary residents to Canada in 2024. The government is facing questions about its strategic goals on temporary resident admissions. As the unemployment rate rises, focus appears to be shifting from plugging labour shortages in the job market to reducing supply pressures and rent inflation in Canada’s housing market.

For more details about changes in the volume of online job postings, please consult our Canadian Hiring Index.

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