unsteady as she goes

On the surface, the latest release of Labour Force Survey data (LFS) from Statistics Canada appears to show a labour market that was little changed in July. The unemployment rate held steady at 6.4% and the country lost just 2,800 jobs last month—a miniscule number relative to the 20.5 million total jobs in Canada. In spite of those two most commonly cited labour market metrics, there was plenty of change to the country’s labour dynamics last month that once again shows weakness in Canadian employment.

For starters, Canada’s trend of record-setting population growth continued into July, with the LFS estimate of the Canadian population (aged 15+) increasing by more than 125,000 last month. Through seven months of the year, Canada’s working age population has been estimated to have grown by more than 733,000 people, which would be more than the entire population of the City of Vancouver.

So if Canada’s working age population saw significant growth while the number of jobs declined last month, why did the unemployment rate not change? The answer to that lies in a decrease in the number of people in the labour force. The number of unemployed people (per the LFS definition) actually declined (by 8,600) alongside the number of employed people. So even with all that population growth, a net of 11,300 people left the labour force. This resulted in the national participation rate declining to 65%, its lowest level (outside of the pandemic years of 2020 and 2021) since June 1998.

Some of this change in labour force participation can be chalked up to good old fashioned demographics as many of those currently exiting the labour force are older Canadians who are retiring—the labour force for those aged 55+ saw a net loss of almost 42,000 last month. But the number of discouraged workers (those leaving the labour force who want to work but are unable to find suitable employment) is on the rise too: increasing by more than 15,000 last month. The proportion of discouraged workers as a share of all those outside the labour force reached its highest level (again outside of the pandemic) since 2016. What’s more, younger Canadians are finding it particularly challenging to find employment and their share of discouraged workers was the highest last month since July 2011.

So while the unemployment rate didn’t rise last month, a smaller share of Canadians were working in July, including many who wanted to. That more people are unable to find work while the number of job openings continues to decline suggests there is increasing slack in the labour market. This is yet another symptom of today’s restrictive interest rate environment and is another piece of evidence that additional cuts to the Bank of Canada’s policy rate will be needed sooner rather than later.