Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Employment dropped by 65.5k in August, significantly weaker than expected, marking a second consecutive month of decline. This is the biggest monthly job loss since the end of the pandemic. As a result, the unemployment rate rose 7.1%, its highest level since May 2016, excluding the pandemic. Moreover, the employment rate eased further to 60.5%, its lowest level since the late 1990s, a further indication of rising slack in the labour market.
The details indicate that the decline in employment was primarily the result of job losses in sectors impacted by US tariffs and the related uncertainty, with significant losses in the manufacturing sector and transportation and warehousing.
While the slack in the labour market increases, wage growth for permanent workers accelerated to 3.6%. Moreover, we estimate that the 3-month annualized change of the seasonally-adjusted series reached 5.9%, suggesting that wage growth was elevated in recent months. Continued high wages could be of concern for the Bank of Canada in the current context where inflation seems sticky.
Overall, today’s data shows that the labour market in Canada is deteriorating, having lost about 100k over the past 2 months. While there are indications that overall economic activity is no longer deteriorating, it is not rebounding strongly either, and sectors affected by the US tariffs are likely to continue to struggle. This means that the labour market will likely remain weak and further job losses are likely in the coming months.
The Bank of Canada will need to balance increased slack in the economy, with a sharp contraction in economic activity in Q2 and big job losses in recent months, and core inflation remaining stubbornly slightly above its target. Since its June meeting, the BoC has made it clear that it would focus on inflation rather than on increasing slack in the economy. However, this is likely to change in September.
A greater amount of slack in the economy than expected raises the likelihood of a cut in September, but a cut may still hinge on the next CPI release, the day before the policy meeting. Any signs of easing in inflation would mean a rate cut in September, even if core inflation remains around 3%. But an upside surprise to inflation could delay it.
Alberta saw a drop of 14.2k jobs in August, a second consecutive month of losses, meaning that the province has lost about 10k since the beginning of the year. As a result, the unemployment rate jumped to 8.4%, its highest since 2017, excluding the pandemic. We also note that the provinces employment rate dropped to 63.0%, its lowest level since record started in 1976, excluding the pandemic.
The weakness in the labour market since the beginning of the year is somewhat surprising, given Alberta’s economy is much less impacted by the US tariffs than the rest of the country, since most of its exports qualify for the CUSMA-exemption. This suggests that there could be other factors at play.
Wage growth in Alberta slowed to 2.6% y-o-y from 43.2% y-o-y and continued to underperform the rest of the country. However, the 3-month annualized change of the seasonally-adjusted series, at 12.0%, suggests a sharp rise in average wages in recent months. Wages in Alberta have generally underperformed relative to the rest of the country in recent years (see Why are Albertans so grumpy? It’s about falling behind economically for some explanations).
Employment decreased by 65.5k in August, the biggest decline since the pandemic. The unemployment rate rose to 7.1% from 6.9% in July, its highest since 2016 excluding the pandemic, due to a decrease in employment. The participation rate fell to 65.1% from 65.2%, as some discouraged job seekers left the labour force. The employment rate, the share of the population holding a job, edged lower to 60.5% from 60.7%. Both the participation rate and the employment rate are at their lowest levels since the late 1990s.
Wage growth for permanent workers accelerated to 3.6% y-o-y, after 3.5% in July. Per se, the 3-month annualized change in seasonally-adjusted wages shows that wages declined 5.9% from 7.3%, suggesting stronger wage pressures in recent months.
The details show that the job losses were in both part-time jobs (-59.7k), and full-time job (-6.0k). The lower employment in August was mostly in the self-employed (-42.6k), the public sector(-15.5k), and private sector (-7.5k). Over the past year, almost a third of job creation was in the public sector. Hours worked increased in August (+0.1% m-o-m), suggesting that economic activity improved this month.
On an industrial level, there were job loss in the service sector (-67.2k) and job gains in the good-producing sector (+1.7k)
The details in the goods-producing sector (+1.7k) show that the job loss were mainly in manufacturing (-19.2k), and natural resources (-5.6k). They were partly offset by increases in construction (+17.1k), agriculture (+4.8k), and utilities (+4.7k).
The decrease in the service industries (-67.2k) was led by professional, scientific & technical (-26.1k), transport and warehousing (-22.7k), educational services (-18.4k), and other services (-6.1k). These decreases were partly offset by increases in accommodation and food services (+9.2k), health care (+3.3k), and business, building and other support services (+2.9k).
At a provincial level, the decrease in employment was concentrated in Ontario (-26.0k, -0.3% m-o-m), BC (-15.7k, -0.5% m-o-m), Alberta (-14.2k, -0.6% m-o-m), and New Brunswick (-6.5k, -1.6% m-o-m). There were some job gains in two provinces, led by Quebec (+7.5k, +0.2% m-o-m), and PEI (+1.1k, +1.2% m-o-m).
The unemployment rate remained constant at the national level but saw some slight increases in some provinces, led by Alberta (+0.6pp), Quebec (+0.5pp), BC (+0.3pp), Manitoba (+0.2pp), and New Brunswick (+0.2pp). PEI (-0.7pp), Nova Scotia (-0.5pp), Saskatchewan (-0.3pp) and Ontario (-0.2pp) saw a decline in the unemployment rate.
The unemployment rate is the highest in Newfoundland (+10.7%), Alberta (+8.4%), PEI (+8.1%), New Brunswick (+7.7%) and Ontario (+7.7%). It is the lowest in Saskatchewan (+4.7%), and Manitoba (+5.7%).
Wages for permanent workers increased nationwide. It increased most in Manitoba (+5.4% y-o-y), Nova Scotia (+4.7% y-o-y), BC (+4.3% y-o-y), and Quebec (+4.0% y-o-y). It rose at the slowest pace in Newfoundland (+2.3% y-o-y), and Alberta (+2.7% y-o-y).
Looking at CMAs, Employment grew the most over the past year in Drummondville (+18.9% y-o-y), Red Deer (+9.3% y-o-y), Peterborough (+8.8% y-o-y). However, the lowest-performing cities were Guelph (-6.3% y-o-y), Lethbridge (-5.3% y-o-y), and Windsor (-5.0% y-o-y).
The unemployment rate was the highest in Windsor (+11.1%), Kamloops (+10.3%), and Brandford (+9.4%). While the lowest rates are in Saguenay (+4.0%), Kelowna (+4.1%), Quebec (+4.4%) and Saskatoon (+5.0%).
In Alberta, employment decreased by 14.2k in August, a second consecutive month of sizeable decline. As a result, the unemployment rate jumped to 8.4% from 7.8%, the highest since 2017 if we exclude the pandemic. The participation rate eased slightly to 68.8% from 68.9%. The employment rate, the share of the population holding a job, declined to 63.0% from 63.5%, its lowest on record. Wage growth for permanent workers decelerated to 2.6% y-o-y. The 3m/3m annualized wage growth eased to 12.0%, suggesting a substantial increase in average wages for permanent workers in recent months.
The job losses in Alberta were mainly part-time (-23.7k), while full-time jobs increased (+9.6k). Employment was lower mainly in the private sector (-28.4k) and self-employed (-6.9k), while employment increased in the public sector (+21.2k).
The employment decline was mainly in the goods-producing sectors (20.5k), while the service sector increased slightly (+6.3k).
The decline in the goods-producing industry was mainly due to job losses in manufacturing (-25.1k), natural resources (-3.4k), and agriculture (-1.5k). These were partly offset by gains in utilities (+4.6k) and construction (+2.1k).
The changes in employment in the service sector were mixed. There were gains in health care (+17.7k), education (+6.7k), information, culture and recreation (+3.0k), and accommodation and food services (+2.5k). These were partly offset by declines in trade (-19.1k), professional, scientific and technical services (-5.1k), and transport and warehousing (-3.3k)
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 1.6k jobs each month on average. The increases in were only in Edmonton (+11.2k), Western Alberta (+1.3k), and Wood Buffalo-Cold Lake (+1.0k).
The unemployment rate for the province rose to 7.6% on average over the past three months. The unemployment rate increased in many regions, except in Wood Buffalo-Cold Lake (-0.7pp), Calgary (-0.1pp), and Western Alberta (-0.1pp). It increased the most in Lethbridge-Medicine Hat (+1.0pp), Edmonton (+0.4pp), and Red Deer (+0.1pp).
The unemployment rate is the highest in Edmonton (8.4%), Calgary (7.5%), Lethbridge-Medicine Hat (7.4%), and Western Alberta (7.1%). It is the lowest in, Camrose-Drumheller (5.3%), Red Deer (5.4%) and Wood Buffalo-Cold Lake (6.2%).
The employment rate for Alberta eased to 63.6% over the past three months. The employment rate improved only in Edmonton (+0.7pp), Wood Buffalo-Cold Lake (+0.6pp), and Western Alberta (+0.6pp). It decreased the most in Red Deer (-1.2pp), Calgary (-0.7pp), Camrose-Drumheller (-0.6pp), and Lethbridge-Medicine Hat (-0.5pp).
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Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any organization or person in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication.