Marc Desormeaux explains how Canada's labour market balances job growth with rising population, influencing the Bank of Canada's policies
Marc Desormeaux, principal economist at Fédération des caisses Desjardins du Québec, discussed Canada's labour market with Financial Post’s Larysa Harapyn.
Desormeaux highlighted the current state and implications for the economy and the Bank of Canada.
In July, Bank of Canada Governor Tim Macklem indicated there was slack in Canada's labour market. Desormeaux noted the labour market is weakening, making employment harder to find, although job losses are not evident.
Jobs are still being created, but not at a rate that matches the strong population growth. This balance between supply and demand has led to a significant rise in the unemployment rate, influencing the Bank of Canada's decision to ease interest rates.
The June unemployment rate stood at 6.4 percent. Desormeaux expects the labour market to slow down further as Canadians feel the impact of past interest rate hikes. Despite this, net job losses are not anticipated due to strong population growth and lingering job shortages from the pandemic.
Although a recession is not expected in the next few quarters, many Canadians will experience economic conditions resembling a recession, with increasing weakness in the labour market and the broader economy.
Desormeaux explained that while jobs are being created, the rate is insufficient compared to population growth, causing the unemployment rate to rise. This trend is evident across most of the country, with significant regional differences.
For instance, Ontario and BC experience more pronounced job creation lags due to higher household indebtedness and housing exposure, making them more sensitive to interest rate changes.
Conversely, Alberta's economy benefits from stronger commodity production and an influx of younger people due to better job prospects and affordability.
Wage growth remains strong but shows signs of slowing in some measures. As inflation trends downward, the Bank of Canada is likely to continue cutting interest rates.
These developments suggest that high interest rates may no longer be necessary, paving the way for a more balanced economic environment.
Desormeaux concluded by expressing optimism about the constructive impact of these trends on inflation and interest rates.
