Canada Employment Preview: Forecasts from five major banks, further rise in the job count

We look for the labour market to add just 20K jobs in July as the unemployment rate holds at 5.4% and wage growth for permanent workers firms to 4.2% YoY. Our forecast would see the 6m trend slow to just 27K from 48K in June, falling below neutral levels of job creation for the first time since late 2022, which follows the recent moderation in job vacancies as well as a pullback in hiring intentions. This should help labour market conditions move closer to balance, although it will still take several months of below-trend job growth to get there.

We expect a 25K uptick in new jobs in July. Still, surging population growth means that won’t be enough to absorb all new labour market entrants. The unemployment rate edged up 0.2 percentage points in each of May and June and we look for another tick higher in July. Total job postings have also been trending lower. And slower wage growth in recent months has been consistent with signs that the surge of excess demand for workers in the economy has weakened. We see softening job markets keeping the BoC on the sidelines with no additional interest rate increases this year. Still, central banks in Canada and abroad won’t hesitate to hike interest rates further if needed to put inflation back in target range.

Although vigorous, job creation in July may not have been sufficient to bring down the unemployment rate, as an expected gain of 25K jobs may have been entirely offset by a further sharp increase in the labour force. According to this scenario, and assuming that the participation rate remains unchanged at 65.7%, the unemployment rate should stay put at 5.4%.

While employment growth resumed in June, it failed to keep up with the surge in working age population – a trend that we expect will have continued in July. The 25K increase in job count we expect wouldn’t quite keep up with projected labour force growth, and as a result would see the unemployment rate rise to 5.5%. With job vacancy rates continuing to edge lower, it is clear that demand for labour is easing at the same time that the supply of potential workers is rising quickly. While wage growth could rebound slightly after decelerating more than expected in the prior month, it should still remain well below the 5.4% peak seen towards the end of last year.

We expect a 45K increase in employment in July, a strong increase reflecting the continued upside to employment figures due to substantial population growth. This would continue a bounce-back of employment from a modest decline in May. Another large increase in employment should keep the unemployment rate unchanged at 5.4%, a still very low level but somewhat higher than the lows reached earlier this year. Wage growth has also slowed somewhat, although this is partly due to unfavorable base effects in June and a rebound to 4.0% is expected in July. The BoC may not see this labor market backdrop as encouraging for reaching the 2% core CPI target if further loosening does not occur over the coming months, particularly if wage growth remains around 4-5%. However, a July employment report in line with expectations, with a higher unemployment rate and softer wage growth compared to a few months ago, is likely to be mostly inconclusive for the outcome of the BoC’s September meeting.