Canadian unemployment rate drops to 5.2%: What you need to know

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Canadian employment was little changed in September from the previous month and the unemployment rate fell to 5.2%, although fewer people told Statistics Canada they were looking for work, which reduced the size of the active workforce. Here’s what you need to know:

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The numbers of the holders

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Canadian employers added about 21,000 workers in September, Statistics Canada reported Oct. 8, too few to represent a statistically significant change from the previous month.

The unemployment rate, which rose to 5.4% in August, fell to 5.2% last month. The improvement, however, was not the result of a resurgence in hiring; Statistics Canada said the labor force declined by about 20,000 people as fewer respondents to the monthly labor force survey said they were actively looking for work.

Perhaps the most important figure at Statistics Canada’s monthly hiring meetings these days is wages. The agency said average hourly wages rose 5.2 percent from September 2021, the fourth consecutive month that wages have risen more than five percent from a year earlier. That’s fast by historical standards, but not fast enough to match inflation, which is currently around seven percent.

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The backdrop

Bank of Canada Governor Tiff Macklem was very clear about how he sees economic conditions this week: still too hot.

“All the signs today point to an economy that is clearly in excess demand,” Macklem told the Halifax Chamber of Commerce on Oct. 6. “Labor markets remain very tight. Job openings have eased somewhat in recent months, but remain exceptionally high. Our business surveys report widespread labor shortages. And wage growth has increased and continues to increase.”

The central bank, which has already raised its benchmark interest rate by three percentage points since March, is not done yet. The policy rate, currently at 3.25 percent, is likely headed for four percent or higher.

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bottom line

The latest hiring data suggests the economy is cooling. Total hours worked, an important indicator of economic output, fell 0.6 percent from August, although it remained roughly two percent higher than a year earlier. Still, some of the “excess demand” that worries Macklem so much is probably starting to seep into the ether.

Still, the five per cent year-over-year wage increases will only reinforce the Bank of Canada’s contention that conditions remain too hot. Central bankers believe there is a close correlation between wage increases and inflation, and containing price increases is the primary mission of the Bank of Canada.

Macklem’s observation that upward wage pressures are starting to “broaden” was probably important. Statistics Canada tracks sixteen major industry groups; eleven of them reported year-on-year wage increases of more than three percent in September, compared with nine in May and seven in January.

Canada’s job market is as tight as ever. Expect the Bank of Canada to try to loosen it.

• Email: kcarmichael@postmedia.com | Twitter: carmichaelkevin