A weak employment report unlikely to sway the Bank of Canada

Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud. This report includes regional details for Alberta.

Bottom line

Today’s Labour Force Survey data points to a weaker labour market in March after a solid start to 2024. With employment declining and population growth strong, the unemployment rate rose to 6.1%, its highest since November 2021, pointing to another increase in the amount of slack in the economy.

The report also showed that wage growth for permanent workers increased to 5.0% y-o-y, still higher than justified by productivity growth and catch-up in purchasing power. However, we estimate that the 3-month annualized change of the seasonally-adjusted series eased to 2.4%, suggesting some deceleration in the coming months. Moreover, a wide range of wage measures eased in March, indicating that the accumulated slack in the labour market is finally holding back wage growth.

The Bank of Canada will welcome signs of slower wage growth, even though it continues to grow at levels disconnected from productivity gains. Moreover, there are increasing signs that the slack built up in the labour market over the past year is helping to ease some of the wage pressures.

We think the weak employment report for March is unlikely to sway BoC into an earlier-than-expected rate cut; after all one month of data doesn’t make a new trend. Comments from the BoC suggest that inflation, especially its measure of core inflation and the breadth of the inflationary pressures, remains key for the timing of the first rate cut.

We think the BoC is unlikely to contemplate rate cuts until core inflation and its momentum have been brought sustainably below 3%. We expect this to happen around April or May, opening the door to a rate cut at the June meeting.

We will watch to see if the weakness in March continues in April and beyond. As we have mentioned on numerous occasions, whether the country experiences a soft or hard landing depends heavily on the health of the evolution of the labour market i.e. whether we see a hiring freeze or broad-based layoffs as the economic activity slows further (see Will it be a hard landing or a soft landing? The labour market will decide). So far, there are no signs of a significant deterioration in the labour market.

Alberta saw a decrease in employment in March of 3.5k. The unemployment rate also rose to 6.3%, but less than would otherwise be due to a decline in the participation rate.

Over the past year, the province has created 83k jobs, more than a quarter of Canada’s gain. However, the unemployment rate in Alberta remains higher than the national measure, partly due to the strong population growth. Moreover, wage growth in Alberta (+42% y-o-y) continued underperforming against the rest of the country (see Where’s the boom? And the rise and fall of the Alberta Advantage for some explanations).

Employment declined by 2.2k in March, weaker than expectations. With employment gains underperforming the increase in the labour force, the unemployment rate increased to 6.1%, its highest since November 2021. The employment rate, the share of the population holding a job, edged lower to 61.4% from 61.5%, resulting from stronger population growth than employment growth.

Wage growth for permanent workers increased to 5.0% from 4.9% y-o-y. However, the 3-month annualized change in seasonally-adjusted wages eased to 2.4%, suggesting that wage growth continues to decelerate. Moreover, wage growth across a broad spectrum of measures is also lower, but remains elevated.

The details show losses in full-time jobs (-0.7k) and part-time jobs (-1.6k) in March. Moreover, the lower employment was mostly in self-employed (-29.3k), while there were gains in the private sector (+15.2k) and public sector (11.9k). Over the past year, job creation has been stronger in the public sector (+202.1k) than in the private sector (+141.3).

On an industrial level, the employment losses were mainly in the service sector (-32.0k), while jobs in the goods-producing sector saw a gain (+29.9k).

The details in the good-producing sector show that the job gains were broad-based, except for a decline in agriculture (-2.5k). Higher employment was observed in the other sectors led by construction (+15.3k), manufacturing (+9.3k), and utilities (+4.3k).

There were large job losses in many service industries led by accommodation and food services (-26.6k), trade (-23.1k),  professional, scientific and technical (-19.9k), and information, culture and recreation (-10.0k). These losses were partly offset by gains in health care (+39.9k), finance, insurance and real estate (+11.0k) and education (+9.4k).

At a provincial level, almost every province saw a decline in employment, except in Ontario (+26.1k, +0.3% m-o-m), BC (+6.6k, +0.2% m-o-m), and Newfoundland (+0.0k, 0.0% m-o-m). The biggest job losses were in Quebec (-18.0k, -0.4% m-o-m), Saskatchewan (-6.0k, -1.0% m-o-m), Manitoba (-4.3k, -0.6% m-o-m), and Alberta (-3.2k, -0.1% m-o-m).

Every province saw a rise in the unemployment rate in March, except for Newfoundland (-0.1pp). The largest increases were in New Brunswick (+0.9pp), Manitoba (+0.5pp), PEI (+0.4pp), and Saskatchewan.

The unemployment rate is the highest in Newfoundland (+10.1%), New Brunswick (+7.8%), PEI (7.4%), and Ontario (6.7%). It is the lowest in Manitoba (5.0%), Quebec (5.0%), Saskatchewan (5.4%), and BC (+5.5%).

Wages for permanent workers increased the most in BC (+7.9% y-o-y), New Brunswick (+7.3% y-o-y), Ontario (+4.8% y-o-y), and Nova Scotia (+4.7% y-o-y). It rose at the slowest pace in Newfoundland (+1.6% y-o-y), Saskatchewan (+3.2% y-o-y), Manitoba (+3.3% y-o-y), and Alberta (4.2% y-o-y).

In Alberta, employment decreased 3.2k in March. The unemployment rate rose to 6.3% from 6.2%, despite a decline in the participation rate tp 69.5% from 69.9%. The employment rate, the share of the population holding a job, eased to 65.2% from 65.5%. Wage growth for permanent workers 4.2% y-o-y, underperforming the rest of the country.

The job losses in Alberta were mainly self-employed (-11.0k) and in the public sector (-7.1k), while the private sector gained (+14.8k). The lower employment gain was mainly in the services secor (-17.2k), while there were gains in the goods-producing sector (+13.9k).

The increase in the goods-producing industry was broad-based, led by manufacturing (+4.6k), utilities (+3.9k), construction (+2.4k), and natural resources (+2.2k).

The lower employment in the service sector mainly came from trade (-21.6k), with smaller losses in professional, scientific and technical (-5.4k), finance, insurance and technical (-3.5k), and transport and warehousing (-2.7k). These losse were partly offset by higher employment in health care (+12.4k), other services (+2.9k), and information, culture and recreation (+2.3k).

On a regional basis[1], the data is published on a three-month average basis (see table below). Over the past three months, the province gained 14.2k jobs each month on average. The increases were mainly in Calgary (+14.7k) and Edmonton (+2.4k), while it declined in Wood Buffalo-Cold Lake (-1.4k), Red Deer (-0.7k), Lethbridge-Medicine Hat (-0.7k) and Camrose-Drumheller (-0.4k).

The unemployment rate for the province rose to 6.7% on average over the past three months, with increases in all regions except in Lethbridge-Medicine Hat (-0.9pp) and Edmonton (-0.1pp). The biggest increases were in Calgary (+0.7pp), Wood Buffalo-Cold Lake (+0.5pp), and Western Alberta (+0.3pp). The unemployment rate is the highest in Lethbridge-Medicine Hat (7.3%), Edmonton (+7.0%) and Calgary (+7.0%). It is the lowest in Camrose-Drumheller (5.0%), Western Alberta (+5.1%), and Wood Buffalo-Cold Lake (5.5%).

The employment rate for Alberta edged higher to 65.3%. The employment rate improved only in Calgary (+0.8pp), while it eased the most in Wood Buffalo-Cold Lake (-1.5pp), Red Deer (-0.6pp) and Camrose-Druheller (-0.2pp).

[1] All the numbers are expressed as three-month average of the non-seasonally adjusted number.