E-Sight November 4: Canada posts strong employment gains in October, but household finances under strain
Canadian employment surged unexpectedly higher by 108,000 net new positions in October. An increase in the labour force and in labour force participation kept the unemployment rate unchanged at 5.2%. The details of the report were strong and were dominated by increased private sector activity. All of the net job creation was in full-time employment (+119.3k) that overwhelmed the small decline in part-time (-11.0k). Private sector employees increased by a net 73,800 and self-employment climbed 16,500, while public sector employees rose 18,000.
The industry picture was mixed but still strong. Goods-producing industries added 45,100 workers, while services-producing industries added 63,200 positions. The strength in goods was split between construction and manufacturing. The gains in services were concentrated in professional services, accommodation and food services, public administration and other services. There were several industries that recorded close to flat or small job losses. The one industry posting a large decline was a net reduction of 20,200 positions in wholesale and retail trade.
Total hours worked jumped 0.7% month-over-month, which could signal solid economic growth in October.
Average hourly wages were up 5.6% year-over-year in October – a fifth month above the 5% mark. Statistics Canada noted that two-thirds of workers making more than $40 an hour had received a raise compared with only half of those with wages of $20 per hour or less. This is evidence suggesting that lower income households are being harder hit by the current inflation shock. Moreover, Statistics Canada notes that one-in-three Canadians age 15 and older lived in households having difficulty meeting financial needs, up from one in five in October 2020. This highlights the hardship that the inflation shock and the recent rise in interest rates is having on Canadian consumers.
Overall, the Canadian labour force survey for October was remarkably strong and the employment gains reverse the job loses experienced between May to September. The details of the report also highlight the on-going issue of labour shortages, with low unemployment that is contributing to wage gains particularly for higher paid workers. The Bank of Canada will view today’s report as supporting its decision to continue tightening monetary policy and augurs for yet another hike, but maybe 25 basis points, on December 7. However, I would also note that the details showing that wages are not keeping up with inflation and that more Canadian households are experiencing financial hardship are consistent with our core view that a consumer and real estate-led recession is coming .