Canada loses jobs for three months in a row, with unemployment rate rising to 5.4%

In August, Canadian employment rate showed an unexpected decline for the third consecutive month and an increase in the jobless rate, which could mean that interest-rate hikes have begun to cool the national labour market.

According to Statistics Canada, the economy lost 39,700 jobs last month, while Bloomberg surveyed economists predicted a 15,000 gain.

As a result, the jobless rate went up to 5.4% from record lows of 4.9% seen in June and July because of the largest increase in the number of unemployed since strict COVID measures were introduced in January.

The decline in employment and higher jobless rate could mean that Canada’s labour force is re-balancing as the central bank’s aggressive rate increases start to cool economic growth and slow down demand. The additional job searchers could also reduce wage growth as the labour supply expands.

“The weak results could make the Bank of Canada doubt its commitment to raise interest rates even more,” – Andrew Grantham, an economist at CIBC, noted. However, “with one more labour force poll before the BoC’s October meeting, it still seems quite possible that we’ll see at least one more rate increase before a pause.”

Currently, the cumulative declines in employment since May have reached 114,000 positions, pointing to a more moderate hiring activity. Nevertheless, the data keeps showing the signs of extreme tightness in the labour market, even with three months of job declines.

In August, the average hourly wage rate rose by 5.4% annually, following a 5.2% increase reported in both June and July. It’s the fastest gain since 1997, outside of the pandemic.

The main drivers of employment decreases were educational services and the construction sectors. The public sector lost 27,600 positions.

The “drop in construction jobs (a previously growing segment) shows that interest rate increases are affecting the labour market,” – Grantham noted.

The largest declines were reported in British Columbia, Manitoba and Nova Scotia, while the employment was up in Quebec. Other provinces reported almost no changes.

As we reported earlier, on Wednesday Bank of Canada hiked key interest rate by 0.75% to 3.25% – record level since 2008. This move will negatively impact monthly payments on variable products and further tighten mortgage qualification. To discuss how to minimize the effect of rising rates and reverse mortgage strategy for senior borrowers, please join our live interview with Mortgage Broker, Michael Tulchentskiy, this Saturday September 10 at 7:45am. Tune in to Radio Show “Intersection” on FM88.9, watch live stream at Radio NOVA Toronto channel or listen online at radionovatoronto.ca