Labour market shows signs of cooling, but wage growth could be concern for Bank of Canada
The labour market hit a speed bump in July with the unemployment rate rising and the economy unexpectedly shedding jobs, suggesting the Bank of Canada’s interest rate hikes are working to bring an overheated economy back into balance, though wage growth could present some risks.
Employment was little changed in July with a drop of 6,000 positions, Statistics Canada reported Aug. 4. The unemployment rate edged up 0.1 percentage points to 5.5 per cent, the first time the jobless rate has increased for three straight months since the beginning of the pandemic, and is now up 0.6 percentage points from its multi-decade low a year ago.
Economists had expected employers to add 25,000 jobs last month, while forecasting the unemployment rate to match the headline print.
Average hourly wages climbed higher from a year earlier, rising to $33.24, an increase of five per cent after rising 4.2 per cent in June and 5.1 per cent in May. Wages are outpacing the rate of inflation, which was 2.8 per cent in June and 3.4 per cent in May, something Bank of Canada policymakers will be watching closely. Steady gains in incomes are likely to make it difficult to bring inflation down to the central bank’s two-per-cent target.
Alberta Central chief economist Charles St-Arnaud said in a client note that the Bank of Canada will welcome a slowdown in job creation, but wage growth may be cause for concern.
“The higher unemployment rate, while still historically low, suggests some slack in the labour market is slowly being created,” said St-Arnaud, who was a former economist at the central bank. “However, wage growth remains disconnected from weak labour productivity.”
A sharp rise in wage growth in July is estimated to have pushed the three-month
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