‘The hottest summer job market since 1969’: Good news for workers, bad news for the economy as ‘red-hot’ job market continues in June

The latest labour force data is good news for most workers, as wages went up while unemployment remained low. But economists warn that the tight labour market makes an oversized Bank of Canada rate hike all the more likely, which could dampen economic growth and even cause a recession.

The Canadian economy lost 43,000 jobs in June, marking the first decline in employment since January, according to Statistics Canada’s monthly Labour Force Survey. But unemployment also fell to a new record low of 4.9 per cent.

In other words, fewer Canadians were looking for work in June — perhaps because they retired. The loss in employment was almost entirely because of a decrease among workers aged 55 and older, according to Statistics Canada. This was the first decline among older workers since April 2021, and was particularly driven by men aged 55 to 64.

“This is the hottest summer job market since 1969,” said David Macdonald, senior economist with the Canadian Centre for Policy Alternatives.

“For workers, this is generally good news.”

TD economist Rishi Sondhi noted in a Friday release that almost all the job losses were in part-time positions.

Sondhi said some of the details were encouraging, with the number of hours worked climbing and unemployment falling further.

“A very tight job market is prompting stronger wage growth, which will go some way toward offsetting the erosion in real incomes by inflation,” he wrote.

There was a decline in employment in the services sector, particularly in retail trade as well as health care and social assistance, educational services, and information, culture and recreation. However, employment in the goods-producing sector, especially manufacturing and construction, helped to offset that. As well, self-employment fell.

As inflation continues at an exceptionally high rate, wages saw a bigger boost in June than in previous months. Average hourly wages rose 5.2 per cent year over year, compared to 3.9 per cent in May and 3.3 per cent in April.

The number of long-term unemployed people returned to pre-pandemic levels for the first time, down by more than 11 per cent to 185,000 in June.

Macdonald said this red-hot market makes it a great time to look for work, and rising wages are reflecting this, though they’re still behind the rate of inflation. However, he noted that some professions, notably nurses and teachers, are dragging down the average of rising wages because of provincial restrictions on increases in their pay.

“This has happened particularly in Ontario and Alberta, where they’re setting very strict limits … despite the burnout, despite the fact that these workers were on the front lines,” said Macdonald.

But for workers broadly speaking, these are positive statistics, he said.

However, the larger wage gains and continued high inflation rate make it all the more likely that the Bank of Canada will announce a 75-point overnight rate increase next Wednesday, which Macdonald is concerned could mean a recession is in Canada’s future.

The bank’s overnight rate is a blunt instrument that can’t fine-tune the economy, said Macdonald, especially when many of the factors influencing inflation are completely outside its control, such as high gas prices and the ongoing war in Ukraine.

Economists at RBC, too, think Canada is in for a “moderate and short-lived” recession, writing in a report Thursday that inflation, labour shortages and rising interest rates will result in a “moderate contraction” of the economy in 2023.

This will mean a higher unemployment rate, wrote economists Nathan Janzen and Claire Fan, but “to less severe levels than in previous downturns.”

“Though higher rates will restrict growth, they’re necessary to tame inflation and cool an overheating economy,” wrote Janzen and Fan.

Sondhi said TD still expects the Bank of Canada to take an aggressive rate hike next Wednesday, given low unemployment and wage growth.

“Policymakers are resolute in their determination to rein in inflation and prevent expectations from becoming further unanchored. As such, we still expect them to hike by 75 bps at their next policy meeting on July 13.”

Meanwhile, in the United States, employment kept growing past expectations across sectors, nearing recovery of the jobs lost during early pandemic days, while the unemployment rate held steady at 3.6 per cent.

Wage growth in the U.S. was just over five per cent year over year, reflecting high inflation, where an oversized rate hike is also expected.

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