Canadian employment data continue to be both worrying and hard to parse. Statistics Canada reported today that employment fell by 40,000 in August, its third consecutive decline. Employment has fallen by a total of 114,000 since May. This month's decline served to push the unemployment rate up by half a percentage point, to 5,4 percent.
The fall in employment was concentrated in two sectors: education lost 50,000 jobs in August, while employment in construction was down 28,000. These losses were only partly offset by gains in parts of the services sector. The job losses in education may well be largely seasonal in nature and may be reversed in September. However, the significant decline in construction employment may be an early indication that the Bank of Canada's rate hikes are starting to have an effect. If the Bank indeed had an sneak peek at these numbers before Wednesday's rate announcement, its decision to proceed with a further 75 basis point rate hike looks questionable.
There is one element of the data that will raise concerns at the Bank. Average hourly wages rose 5.4 percent in the year to August, up from 5.2 percent in each of the two preceding months. This is still far short of the rise in consumer prices, most recently reported at 7.6 percent, but it shows that any incipient weakness in the jobs market has not yet had any dampening effect on wages.
The employment data are hard to square with the available data on the real economy, with real GDP growing in both Q1 and Q2 and falling only marginally in July. In addition, anecdotal data continue to suggest that employers are having trouble finding the staff they need -- our local Tim Hortons was closed once again yesterday evening! Still, three months of weakness in employment cannot be ignored by policymakers if their goal is to produce a soft landing rather than a recession. It seems quite certain that we are much closer to the end of the tightening cycle than the beginning.
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