Unemployment figures are considered by serious economists and market watchers to be a lagging indicator. But all too many of us make the mistake of believing that the unemployment rate is a leading indicator despite empirical evidence and objective reason. The lagging indicator argument makes sense, as employers do not usually lay off people until there is confirmation that their revenues and profitability are falling. This is confirmed by historical data.
Consequently, it should be of little surprise that Canadian unemployment rose to 6.1 percent in March from 5.8 percent in February, according to Statistics Canada. In July of 2022, the unemployment rate hit a cycle low of 4.9 percent, while in March 2023, the rate was 5.0 percent. A rise of 22 percent in the unemployment rate in one year is consistent with the start of a classic recession.
Unemployment in Canada leading up to the Global Economic Crisis was 6 percent in November 2007 and 6.6 percent in November 2008, an increase of 10 percent. The increase in unemployment in 2000 was even less in magnitude at 6.6 percent in May of that year, rising to 7.0 percent in May 2001. The 1990 recession showed a trajectory closer to our present situation. In October 1989 unemployment was at 7.2 percent, rising to 8.8 percent in a year, or 22 percent. Unemployment increases accelerated in the year after the first post-low year providing substantial evidence that unemployment is a lagging economic indicator.
This analysis begs the question as to whether history will repeat itself. Will unemployment accelerate in the next year, or will we see better numbers going forward? One thing we can be certain of is that despite years of gaslighting by government spokespersons and much of the government-funded and subsidized media, the economy is struggling. Real disposable income has been flat or falling since the late 2010s. Employment figures are catching up to reality. According to Statistics Canada, the employment rate has fallen for the sixth consecutive month.
We should also be aware that the labour market has changed over the years. The baby boomers are retiring, and the workforce is considerably older than it was 40 or 50 years ago. The average age of Canadians is estimated to be about between 41 and 42. In 1974, the average Canadian was about 26 years old.
The percentage of Canadians with university education has more than doubled over the years. Therefore, the labour market is quite different than in the past. We have more “educated” people doing unproductive jobs and fewer “uneducated” workers doing productive work like bricklaying, plumbing, and carpentry. Also, the federal government is a much larger employer than in the past which will tend to keep unemployment lower overall and dampen increases during economic downturns. According to StatCan, there were 257,138 federal government workers in 2015. As of 2023, there were 357,247, an increase of 39 percent. More and more people either work for various levels of government or in heavily sponsored government businesses.
Canada in the past had a younger population, smaller government, and was an important manufacturer and a resource giant. Now it appears that the economy depends on a combination of state-sponsored and non-optimal make-work programs and what I call the “three C’s”: condos, coffee shops, and cannabis. Is it any surprise our ranking in living standards has dropped from being in the top five countries to somewhere in the 20s, or that our economy has underperformed the United States by a large margin over the last few years?
One piece of advice a mentor gave me in the early days of my career was that trends continue until they reverse. That meant not trying to time tops and bottoms. That was great advice and prevented me from taking profits too early during a bull run. The unemployment rate may have peaked in this cycle, but most likely not if history is a guide. If this situation follows in line with the past, unemployment will probably, but not certainly, have a 7 percent handle at some point. Again, the economy is quite different than in the past, and mostly not in a good way.
Also, struggling Canadians are in lower-wage jobs than they should have relative to their abilities. Incomes are being kept down by a combination of factors, including poor productivity, high taxes, and an oversupply of labour due to massive immigration. Although the federal government contends that Canada has a shortage of labour, this flies in the face of the most basic economics. Declining wages and rising unemployment are a sign of oversupply, not undersupply.
The official numbers, on the surface, do not take into consideration “underemployment” and the gig economy. Also, people are doing multiple jobs to survive, and working long hours. I suspect that the underground economy, what we used to call the “black market,” is growing. Drug dealing is certainly growing, we know that from the number of deaths and overdoses we are seeing. A late-night drive in any large Canadian city should make that obvious. The subscription service website OnlyFans, which is used primarily by sex workers who produce pornography but also hosts other content creators, has grown from $375 million in revenue in 2020 to $2.5 billion in 2022. There are estimated to be 1.5 million “content creators” worldwide. No doubt, there are young Canadian women who are using this service.
Regardless of how the unemployment rate changes from month to month, Canada has all the symptoms of an economy in both cyclical and secular decline.
