Economic insight 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  tight labour market in Canada, despite lower employment and a slight rise in the unemployment rate. The details also show robust employment gains for core working-age workers (age 25 to 54 years), a key segment of the labour market, while most of the job underperformance seems linked to the younger cohort having difficulties finding summer jobs, which could be a sign of a weakening labour market.

The low unemployment rate, at 5.2%, continues to signal that the labour market remains very tight, something the Bank of Canada is closely monitoring. Moreover, the report also shows that wage growth remains above 5% and higher than inflation, with average wages increasing by 5.1% y-o-y. However, we note that the 3-month annualized change of the seasonally-adjusted series, at 2.5%, suggests that wage growth is decelerating.

A robust labour market and strong wage growth remain a challenge for the Bank of Canada. While the BoC will welcome the higher unemployment rate, it remains historically low and will need to rise further to create some slack in the labour market. Moreover, wage growth remains strong and disconnected from weak labour productivity.

The continued resilience of the labour market, the strength in the economy and the inflation stickiness the BoC to hike its policy rate this week. However, the BoC made it clear that the central bank will choose inflation in the tug-of-war between fighting inflation and avoiding a recession. Whether the BoC hikes further depends mainly on inflation and whether it remains sticky or shows signs of moderation. The risks are tilted towards another hike before the end of the year.

Alberta saw a slight increase in employment in May and the unemployment rate declined to 5.7%. Over the past twelve months, the Alberta labour market has outperformed the rest of the country in terms of job gains. However, the unemployment rate in Alberta remains higher than the national measure. As a result, we observe some continued underperformance in wage growth in Alberta at 2.7% y-o-y, compared to 5.1% y-o-y in the rest of Canada.

Employment declined by 17.3k in May, after eight consecutive months of increase. However, the details show stark contrasts between cohorts. Most of the job losses -77k) were in youth employment (aged 15 to 24), while employment for core aged workers (aged 25 to 54) increased strongly (+63k). May is usually a strong month of hiring for student jobs and the underperformance suggests that students may have had a harder time finding positions this year.

With the decline in employment, the unemployment rate rose to 5.2%, but still historically low, while the participation rate inched lower to 65.5% from 65.6%. The participation rate is still 0.4 percentage points (pp) lower than before the pandemic, as workers left the labour force. If the participation was the same as before the pandemic, the unemployment rate would be 5.7%. The employment rate, the share of the population holding a job, was also declined at 62.1%, on par with its pre-COVID level. Wage growth remained at 5.1% y-o-y, remaining above 5%. However, the 3-month annualized change in wages is at 2.5%, suggesting that wage growth is decelerating.

The details show that the job gains in May were all part-time (+15.5k), while there were losses in full-time (-32.7k). In addition, the decline in employment was mostly in self-employed (-39.6k), while there were gains in the private sector (+12.5k) and public (+9.7k).

On an industrial level, all the decline in employment was in the service sector (-40.1k), while there were increases in the goods-producing sector (+22.8k).

The details in the good-producing sector show that the job gains were broad-based, led by manufacturing (+12.9k), utilities (+4.2k), agriculture (+3.1k), and natural resources (+2.1k).

The decrease in the service industry came mainly from losses in business, building and other support services (-31.1k), professional, scientific and technical (-13.4k), trade (-12.9k), and transport and warehousing (-9.7k).

Despite continuous gains in employment and the overall level of employment being above its pre-COVID level by 4.4 percentage points, only 11 out of 16 industries have a level of employment above its pre-pandemic level. The lagging sectors are: agriculture, transport and warehousing, business, building and other support services, accommodation and food services, and other services. Employment in the accommodation and food services is still almost 8% below its pre-COVID-19 level, but continues to improve.

In Alberta, employment increased slightly by 3.9k in May. With an increase in the labour force and a decline in the participation rate to 69.5% from 69.8%, the unemployment rate edged lower to 5.7% from 5.9. The participation rate in the province is still 1.6 percentage points (pp) below its pre-pandemic level suggesting many workers are remaining on the sidelines. If the participation rate was at the same level as before the pandemic, the unemployment rate in the province would be 7.8%. The employment rate, the share of the population holding a job, inched lower to 65.6%, slightly below its pre-pandemic level.

The job gains in Alberta were mainly in the goods-producing sector (+6.1k), while there were modest losses in the goods-producing sector (-2.2k). The gains in the goods-producing industry were concentrated in construction (+9.5k), while there was a loss in manufacturing (-3.6k).

The decline in the service sector was mainly in professional, scientific and technical (-14.1k), and transport and warehousing (-8.2k). These losses were partly offset by gains in education (+9.2k), finance, insurance and real estate (+4.8k), and trade (4.7k).

Despite the overall employment being above its pre-COVID level by 6.1pp, only 8 out of 16 industries have a level of employment above their pre-pandemic levels. The lagging industries are: agriculture, natural resources, utilities, manufacturing, business support, information, culture and recreation, accommodation and food services, and other services. Employment in the accommodation and food services sector, the worst-hit industry, remains more than 10% below its pre-COVID-19 level, underperforming the rest of the country.

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 19.1k jobs each month on average. Most of the gains were in Calgary (+12.6k) and Edmonton (+8.7k). Conversely, there were declines in Camrose-Drumheller (-3.6k) and Lethbridge-Medicine Hat (-1.6k). With a marginal decrease in May, we note that Red Deer has seen a fifth consecutive decline in employment.

The unemployment rate for the province declined to 6.0% from 6.3%. Most regions saw either unchanged or lower unemployment rates, except for Wood Buffalo-Cold Lake (+0.4pp). The biggest declines in the unemployment rate were in Camrose-Drumheller (-1.0pp), Red Deer (-1.0pp) and Western Alberta (-0.6pp).

The unemployment rate is the highest in Edmonton (6.4%), Calgary (6.0%), and Red Deer (5.8%). It is the lowest in Wood Buffalo-Cold Lake (4.5%), Western Alberta (5.3%), and Camrose-Drumheller (5.6%).

The employment rate for Alberta rose to 66.3% from 66.1%. The employment rate increased the most in Calgary (+0.6pp), Western Alberta (+0.5pp), and Edmonton (+0.4pp). It decreased in Camrose-Drumheller (-2.2pp), Lethbridge-Medicine Hat (-1.0pp), Wood Buffalo-Cold Lake (-1.0pp) and Red Deer (-0.5pp).

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

Independent Opinion

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