Canada lost 40,000 jobs in August, bringing the unemployment rate up to 5.4% from its record low in July as construction and education led the declines.
August’s rate is the highest in seven months, and the first increase since April 2021.
The change in the job numbers prompts a question: Is the economy finally slowing down? Not necessarily, because the decline in employment occurred entirely in the construction industry (28,200 jobs lost) and educational services (49,500).
It is no secret that construction has been in decline since the Bank of Canada began raising interest rates in recent months. Higher interest rates mean projects get canceled as developers cannot secure financing and buyers hold back.
In contrast, most other industries held steady or added jobs, showing that the demand for labour remains strong. It is also an early indicator that if we enter a recession, it will be industry-specific, and that certain areas will get hurt substantially more than others.
What might be more concerning is wages rose by 5.4% in August, up from a 5.2% increase in July. Although wage growth still lags inflation, it has accelerated, which does not help the central bank’s case in taming inflation and is a sign that another rate hike is to be expected in October.
The shortage of workers remains acute. As of June, there were more job vacancies (1,038,000) than unemployed people (989,000). Those 55 to 64 have continued to retire early, further exacerbating the shortage.
Canada counts on immigrants to fill its labour force. In August, the unemployment rate among recent immigrants reached 7.6%, the lowest on record, though it remains above the overall rate.
Looking ahead, the next few months might have a moderate decline in jobs as the economy slows even more. Still, this likely decline will not alter the Bank of Canada’s efforts to tame inflation; a moderate recession is expected as a tradeoff to restore price stability.