ANALYSIS: What the Latest Unemployment Numbers Show

A construction worker makes his way through a site in Ottawa on June 27, 2024. The Canadian Press/Sean Kilpatrick

Canada’s unemployment rate in August rose to 6.6 percent, the highest level since May 2017, excluding the pandemic lockdown years of 2020 and 2021, Statistics Canada reports. It represented a 0.2 percentage point increase compared to July’s rate of 6.4 percent.

Although the economy added 22,000 new jobs, a Sept. 6 TD Canada report said this figure was “swamped” by a population growth of 96,000 people and labour force growth of 82,500 new workers.

The latest figure may be more in line with Canada’s experience in recent decades. Between 1998 and 2008, the unemployment rate ranged from a high of 8.3 percent to a low of 6.2 percent, averaging at around 7.1 percent, according to StatCan. The average over the 10-year period from 2009 to 2018 was similar, at 7.2 percent. More recently, while the rate was 5.7 percent in 2019, it rose to 9.7 percent at the outset of the COVID-19 pandemic in 2020. Then, as the economy recovered, it fell to 7.5 percent in 2021, 5.3 percent in 2022, and 5.4 percent in 2023.

The statistics raise questions about whether the most recent unemployment figures are a temporary fluctuation in Canada’s economy or a warning sign of worsening employment and economic conditions.

Economic Ramifications

Gordon Betcherman, a professor emeritus with the School of International Development and Global Studies at the University of Ottawa, says the latest unemployment numbers indicate that the “post-COVID boom” of low unemployment has ended due to the Bank of Canada raising interest rates and the economy slowing down.

“We’re now coming more back into the [unemployment] zone which is more typical of sort of a Canadian experience over the last few decades,” he said.

Betchermen said Canada’s unemployment rate was the lowest in “decades” coming out of the pandemic due to super-low interest rates, low population and labour force growth, and pent-up demand following the pandemic, which led to strong job creation.

However, the demand also contributed to higher inflation, which rose to a peak of 8.1 percent in June 2022 when interest rates were still at 1.50 percent. The Bank of Canada subsequently hiked rates to as high as 5 percent by July 2023.

Canada’s population has been growing quite rapidly not due to high birth rates but to immigration, Betchermen said, adding that the labour market is having trouble absorbing the newcomers entering the workforce, leading to higher unemployment.

Increased immigration began in 2023 with the aim of stimulating economic growth. In 2022, Ottawa announced plans to welcome 465,000 new permanent residents in 2023, 485,000 in 2024, and 500,000 in 2025. In 2023, the federal government said the level would plateau at 500,000 in 2026.

“That may be good for the long-run growth of the economy, but right now it means that we have more people to absorb into the workforce at a time when the economy is not really generating all the jobs that are necessary to accommodate them,” Betcherman said.

Richard Dias, an analyst for IceCap Asset Management and host of the podcast “The Loonie Hour,“ says rising unemployment numbers have typically come following a recession. ”When those [unemployment] numbers go up, it effectively means you are already in a recession, or you’re about to be in one.”

Statistics Canada says the economy grew by just 0.4 percent in the first quarter of 2024, after seeing no change in the fourth quarter of 2023. Since the established definition of a recession is two consecutive quarters of decline in economic activity, the country technically avoided falling into one.

However, a recent Royal Bank of Canada report said Canada’s “surging population growth” is what has prevented declines in the country’s GDP, and that unemployment rates have mirrored previous recessions.

Dias agrees, also noting that Canada’s GDP per capita and consumption per capita have remained stagnant for several years, which is a tell-tale sign of a recession.

He said that this, combined with higher unemployment numbers, indicates that Canada does not have a “healthy” labour market.

“Up until this year, you could have said ’the economy is not doing that bad, employment growth is strong.' Now, when you’re seeing employment numbers really fall off like this, then that becomes very hard to argue,” he said.

Dias also said the economy has not been able to “absorb” the influx of newcomers and that immigration has propped up the economy and prevented the country from officially sliding into a recession over the last year.

Losses and Gains

Sectors that saw increases in employment in August compared to July include educational services (up by 27,000, or 1.7 percent), health care and social assistance (25,000, or 0.9 percent), and finance, insurance, real estate, rental, and leasing (11,000, or 0.8 percent). Sectors that saw the biggest declines include “other services” (decreasing by 19,000, or 2.3 percent); professional, scientific, and technical services (16,000, or 0.8 percent); utilities (6,800, or 4.5 percent); and natural resources (6,500, or 1.8 percent).

Employment in Alberta rose by 13,000, or 0.5 percent, while the unemployment rate increased by 0.6 percentage points to 7.7 percent, due to more people searching for work.

Nova Scotia also saw job gains, with 5,000 new jobs, or a 1 percent rise, as did Manitoba, with 4,4000 new jobs, or a 0.6 percent rise. Prince Edward Island saw 900 new jobs, or a 1 percent rise.

Newfoundland and Labrador was the only province to experience a decline in employment in August compared to the month prior, with 2,400 jobs lost, or a decline of 1 percent. Both Quebec and Ontario saw little employment change.

Among the country’s major cities, the highest unemployment rate in August was in Windsor, at 9.2 percent, followed by Edmonton (8.6 percent) and Toronto (8 percent). The lowest unemployment rates were in Victoria (3.3 percent) and Quebec City (4.0 percent).

Compared to a year ago, the biggest unemployment rate increases were in Windsor (rising from 6 percent in August 2023 to 9.2 percent in August 2024), Oshawa (from 5.3 percent to 7.8 percent), and Edmonton (from 6.2 percent to 8.6 percent).

The unemployment rate in August rose among men aged 25 to 54 and men aged 55 and older, both experiencing an increase of 0.4 percentage points to 5.7 percent and 5.5 percent respectively. There was little change in unemployment for other demographic groups over that month.

However, compared to the previous year, the unemployment rate was up across all age groups. The highest increase was among youth aged 15 to 24, with a rise of 3.2 percentage points to 14.5 percent in August. The core-aged population, 25 to 54 years old saw a 0.9 percentage point rise in unemployment rate, reaching 5.4 percent on a year-over-year basis.

Full-Time Versus Part-Time Jobs

The latest stats indicating a net gain of 22,000 jobs in August was in line with expectations, the TD Canada analysis said. However, it cited StatCan’s note that the net gain was all in part-time positions, as 66,000 part-time jobs were added while 44,000 full-time positions were lost.

Steven Tobin, an expert in labour market and social policy at the C.D. Howe Institute, says these full-time and part-time numbers tend to “fluctuate from month to month” and suggests the August uptick in part-time jobs was due to more students who had been working full-time returning to school and switching to part-time work.

Dias, for his part, said the uptick is a symptom of deeper economic problems. He said part-time workers are often hired first and fired last during economic slowdowns, which means the increase in part-time jobs may be a sign of an economic slowdown.

Reduction in Temporary Foreign Workers

Ottawa recently announced steps to reduce the number of temporary foreign workers in Canada, which increased significantly during the pandemic to address worker shortages. Prime Minister Justin Trudeau told reporters on Aug. 26 that the existing level of foreign workers is inappropriate in the current labour market.

The federal government plans to refuse temporary foreign worker applications in the low-wage stream in metropolitan areas that have an unemployment rate of 6 percent or higher. It’s also capping at 10 percent the foreign workers part of a total workforce that can be hired through the program’s low-wage stream.

Dias said that while these reductions would eventually modify the unemployment rate, the impact would be minor and the “damage is already done.”

Tobin said Canada’s increased immigration rate has impacted the overall unemployment numbers “to some degree.” He said August’s unemployment numbers rose despite a positive job growth rate because more people were seeking work, “part of which is a result of population and labour force growth stemming from increased levels of immigration.”

It’s “hard to predict” how these changes would impact the labour market, but it would “take some time before they are felt in the job market,” said Tobin.