Canada Employment Preview: Forecasts from five major banks, job growth to slow

We look for job growth to slow to 12K in August as softer business sentiment leads some firms to pare back their hiring plans. Services should provide the main driver for job creation, while stronger population growth will see the unemployment rate edge higher to 5.7%. However, we expect limited progress on wages, with wage growth edging lower by 0.1pp to 5.1% YoY.

Job creation may have slowed to 5K in September, reflecting a loss of momentum in the Canadian economy. This modest gain, combined with another significant expansion of the labour force and an unchanged participation rate (65.5%), should translate into a two-tenth increase in the unemployment rate, to 5.7%.

We look for a 25K increase in employment in September. But the broader macroeconomic backdrop is continuing to soften. The unemployment rate has begun to rise, climbing to 5.5% over July and August from 5.0% in the spring. We look for another tick up to 5.6% in September with growth in the labour force growth again outpacing that of employment.

We expect to see a moderate 20K jobs created, half of the pace seen in August, and more in line with weaker domestic demand signals seen in the GDP and Retail Sales data lately. Brisk population growth has raised the bar for the magnitude of hiring that’s required to prevent a climb in the unemployment rate, with September’s job gain likely not meeting that threshold, causing the jobless rate to tick up to 5.6%. Annual average hourly wage growth will likely also cool, helped by a strong year-ago increase dropping out of the annual calculation. A continued climb in the unemployment rate will likely leave the Bank of Canada on hold as it portends weaker domestic demand, which will compound the negative impact of mortgage renewals on consumption ahead.

We expect a strong 55K jobs added in September. Hours worked picking up in recent months could also imply stronger Q3 GDP growth after a surprisingly modest decline in GDP in Q2. While too-strong inflation data alone can still prompt further hikes from the BoC, some turn in recently softer activity could make a decision to raise rates again even clearer. Our September employment forecasts would imply both jobs reports since the decision to pause rate hikes in September have shown solid gains in employment.