Posthaste: Why Canada’s job market might be too good to be true

Canada’s job market appears to have stood up remarkably well to Donald Trump’s tariff war so far, with the economy showing a surprise surge in jobs in June and the

unemployment rate ticking down. “It seems too good to be true,” Andrew Grantham, a senior economist with the

Canadian Imperial Bank of Commerce , said in a report this week. “Unfortunately, that’s probably because it is.”

Grantham argues that the job market is likely weaker than “advertised” in Statistics Canada’s Labour Market Survey and the

Bank of Canada is getting a wrong reading. What’s really happening in Canada’s labour market is that weakness is widespread and largely unrelated to the struggles of industries hit by Trump’s trade war.

“The notion that Canada’s labour market is in good health, aside from understandable weakness in trade sensitive areas such as manufacturing, is too simplistic and likely incorrect,” he said.

“Actual employment growth over the past year may have been much slower than advertised by the LFS, including in sectors that should be less sensitive to trade uncertainties.”

Grantham argues that the Labour Market Survey has overstated

population growth and that could lead to employment growth being revised down to a fraction of what is currently reported.

“We suspect that actual population growth, and by extension employment, has been weaker than advertised by the LFS,” he said.

Canada’s unemployment rate has climbed from 6.6 per cent to 6.9 per cent this year and Grantham said it’s easy to assume manufacturing job losses brought on by the tariff war drove the increase. But looking deeper into the data, “only 20 per cent of the decline in manufacturing employment appears to have been reflected in the unemployment rate.”

Some workers in this sector could have retired, temporarily left the labour force or found work in other sectors.

This tallies with data that suggest the real reason for the rise in the unemployment rate over the past year is not people losing their jobs, so much as people entering the workforce having difficulty finding work, he said.

Ontario, which has suffered the biggest increase in unemployment, reinforces this case. Jumps in the unemployment rate in industrial cities like Windsor and Oshawa accounted for only a fraction of the province-wide rise, he said. While greater Toronto, with its diverse economy, contributed to about half of it.

The idea that labour market weakness is more widespread than reported is supported by the “stall” seen in the payrolls survey of employment (SEPH) over the past year, said Grantham.

Getting a clear picture of what is really happening in the labour market is important because the Bank of Canada has used the strength in Labour Force Survey employment to justify holding interest rates at 2.75 per cent, he said.

“If the Canadian labour market is weaker than advertised, this slack should eventually place downward pressure on core measures of inflation and bring a couple more

interest rate cuts from the Bank of Canada later this year.”  Sign up here to get Posthaste delivered straight to your inbox.

The clock is ticking down to U.S. President’s tariff deadline Friday, with still no news on a deal for Canada. Today’s chart shows how the country’s tariff rate ranks against other countries, some which have reached deals and some which have not.

So far, Trump’s trade deals “are really bad omens for Canada,” William Pellerin, a trade lawyer and partner at the firm McMillan LLP, told the Canadian Press.

“(It shows) that the tariffs, particularly the sectoral tariffs, are stickier than we would have thought,” Pellerin said. “If none of those countries were able to secure a drop in the sectoral tariffs, that is certainly bad news.”

Tariffs on Canadian imports are to rise to 35 per cent on Friday, but most will not be affected because they are compliant with the

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McLister on mortgages

Read more Want to learn more about mortgages? Mortgage strategist Robert McLister’s

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Financial Post on YouTube

mortgage rate page for Canada’s lowest national mortgage rates, updated daily. Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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