Posthaste: Why the Bank of Canada can’t ignore the ailing jobs market

Canada’s labour market is not on the side of employment hunters based on the latest numbers on

job vacancies . Job vacancies continue to decline, according to Statistics Canada’s data released on Tuesday, and there are indications of a building slowdown across the labour market.

The unemployment rate hit 7.1 per cent in August, up from 6.9 per cent in July, and economists said it would have been higher had it not been for a drop in the number of people looking for work.

The economy has shed a net 40,000 jobs since the beginning of March, which is the steepest downturn since August 2020, after losses piled up in July and August.

Economists say that has made it impossible for the Bank of Canada to ignore the state of the job market and the economy more broadly. “Despite slightly-above-target ‘underlying’ inflation , accumulating weakness in the labour market and the presumed downward pressure that will put on inflation is the more important factor right now, even if the Bank (of Canada) can’t be as forward-looking as it would like,” Taylor Schleich and Ethan Currie, economists at National Bank of Canada, said in a note. “At this point, we also have an October cut pencilled in and this data doesn’t jeopardize that call.”

Job vacancies fell for the 12th straight quarter and the vacancy rate has been on a non-stop decline since peaking in the second quarter of 2022, after the economy reopened from the pandemic.

Unlike those heady days when the employment market was flooded with opportunities, job openings fell 12.6 per cent in the second quarter from a year earlier and landed at their lowest level since the first quarter of 2018, Statistics Canada said.

The numbers echo what employers have been telling the Bank of Canada: they are reluctant to hire.

“Fewer firms than usual plan to increase their labour force over the next year,” the Bank of Canada’s Business Outlook Survey, released on July 30, said. “The shares of firms that are hiring to meet expected sales increases, filling vacant positions or holding on to excess labour are all below average.”

The Statistics Canada report “confirms what was shown in earlier releases of the monthly Labour Force Survey and Survey of Employment Payrolls and Hours: Canada’s labour market loosened in Q2, and it became more challenging for unemployed Canadians or those seeking new employment to find a job,” Michael Davenport, senior economist at Oxford Economics Ltd., said in an email.

More people are vying for jobs that are open, as the unemployed-to-job-vacancy ratio rose year over year in the second quarter, Statistics Canada said.

“Employer job creation has underperformed compared to what we’ve seen in terms of the increase in general population in Canada, so those who arrive in the labour market are unable to find work,” Charles St-Arnaud, chief economist at Alberta Central, said.

The ratio of those who are jobless per available position was highest amongst people with a bachelor’s degree or higher.

St-Arnaud said that fits with the mounting difficulties of recent post-secondary graduates in Canada, who have been reporting that they are having trouble landing their first job out of school.

The jobless rate for those aged 20 to 24 hit 12.1 per cent August, up from 11.6 per cent the year before.

“It goes with all that we’re seeing right now with the economy, which is that the increase or the high uncertainty is not conducive to any hiring,” St-Arnaud said. “And, as usual, unfortunately for the younger cohorts, they’re always the last ones in and the first ones out. It’s kind of a perfect storm for them.”

The drop in job vacancies was broad-based and St-Arnaud said that ties in with the reality that there is less demand for workers than prior to the pandemic as Canada’s economy continues to slack off, or not produce to its full potential.

St-Arnaud said the drop in job openings in transportation and warehousing has been one of those areas “that’s been relatively important in the last year,” given the pressure that United States tariffs have placed on the manufacturing and related sectors.

On a year-over-year basis, the number of vacant positions in the second quarter in the trades, transport and equipment operations, and related occupations was down by 13.9 per cent, with the largest declines in vacancies within this group recorded in construction trade helpers and labourers and transport truck drivers.

A couple of measures in the job vacancy release underlined that it is not a job seeker’s market anymore.

For example, average offered hourly wages grew by 4.1 per cent year over year in the second quarter, down from a 4.7 per cent increase in the first quarter.

“With more available workers per job, vacancies, as shown by the unemployment-rate-to-vacancy rate, it means that there’s less need to attract more broadly,” St-Arnaud said, adding that the vacancy wage data lines up with the ongoing slowdown in wage growth in the Labour Force Survey.

The job vacancy report also said the share of long-term vacancies — positions that have remained unfilled for 90 days or more — is decreasing.

For the second quarter, the long-term vacancy rate fell to 27.5 per cent from 30.1 per cent in the first quarter.

“Long-term vacancies are a key indicator of labour market conditions,” Statistics Canada said, adding that a rising rate can indicate tightness in the labour market and challenges finding the appropriate person.

A falling rate, however, “suggests firms are filling vacant positions more quickly, meaning the job market is more challenging for the unemployed and those looking to switch jobs.” Davenport at Oxford said, adding that the second quarter slowdown was also likely due to tariff uncertainty weighing on business hiring plans.

So where is the jobs market headed? St-Arnaud said the job vacancy numbers combined with the recent Labour Force Survey mean job creation will continue to be weak for the next few months. He expects the unemployment rate could rise to “just shy” of 7.5 per cent from its current level of 7.1 per cent.

Davenport at Oxford said the prospects for jobs and the economy will improve, especially given Canada ended retaliatory tariffs against U.S. imports and the Canada-U.S.-Mexico Agreement compliance rate for exports to the U.S. continues to rise.

In the short term, he is calling for the jobless rate to rise.

“But we still expect modest job losses in Q4 to lift the unemployment rate to 7.4 per cent as the economy continues to teeter on the verge of recession,” he said.

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