Running hard but still falling behind

So, first the good news. According to Statistics Canada, the Canadian economy added 39,900 new jobs in August. That was about twice as large as the reliably risible analysts' consensus.  Fully 32,200 of the new jobs created in the month were full time. As a result of the large increase in employment, the unemployment rate was unchanged at 5.5 percent, after edging higher in each of the previous three months.

If only that were the whole story.  Thanks to rapidly rising immigration, the working age population rose by fully 103,000 in the month.  This meant that despite the strong job numbers, the employment rate, which measures the number of persons over age 15 actually working, fell by 0.1 percentage points, to stand at 61.9 percent. Note that the employment rate is not the same as the more frequently quoted participation rate, which includes the unemployed as well as the employed in the calculation. That ratio also slipped by 0.1 percentage points in the month, to stand at 65.5 percent. 

This is not just a one-month phenomenon. The working age population has grown by an average of 81,000 per month so far in 2023. Making allowance for normal dependency and participation patterns, the economy would need to create an average of 50,000 jobs per month to keep the unemployment rate unchanged.  The actual average monthly increase in employment so far this year has been 25,000. Note that these numbers come directly from the StatsCan media release -- they are not calculations done by me or some other analyst. 

This hardly seems like a sustainable pattern. There is evidence of serious pressure on housing markets across the country, with the three levels of government -- Federal, Provincial and municipal -- all pointing the finger of blame at each other. Canada has always had sickeningly high numbers of "rough sleepers" on city streets, but that sad phenomenon seems likely to be worse than ever just as the cooler weather starts to arrive.  Yet there are few signs within the Federal government, which ultimately controls overall immigration levels, that anything will be done to address the problem.

What does all this mean for Bank of Canada policy? A strong rise in employment is hardly a recipe for stable interest rates, let alone rate cuts. And yet, the massive rise in the working age population makes it possible to argue, as at least one major bank economist has already done today, that the tightness in the labour market may actually be easing despite the job gains.  This is a difficult argument to sustain unless you have evidence that the qualifications of the new arrivals match those needed in the labour force.  

Only time will tell if that is the case, though it should be added that large segments of the Canadian economy, from agriculture to medicine,  would collapse overnight but for the presence of immigrants. Muddling through without any sort of plan may work out just fine in the end, but the imbalance between population growth and employment in today's numbers suggests things could very quickly turn sour.