Unemployment edges higher while job growth struggles to keep pace with population increases
Canada’s labour market continues to grapple with slower growth compared to the United States, underscoring mounting economic pressures ahead of crucial policy decisions by the Bank of Canada (BoC) and the US Federal Reserve (Fed).
RBC economists Nathan Janzen and Carrie Freestone forecasted that Canadian unemployment will edge up to 6.7% in November, up from 6.5% in October, as job creation struggles to keep pace with the country’s rapidly expanding labour force.
While Canada has added jobs consistently, it hasn’t been enough to counter the effects of its population surge, driven by record-high immigration levels. RBC’s analysis indicated that the unemployment rate remained nearly one percentage point higher than it was a year ago.
Recent months saw a temporary dip in unemployment, primarily due to a decline in labour force participation, particularly among younger workers pausing their job searches.
Job openings have fallen significantly, with September figures showing an 18% year-over-year decline. RBC expects the participation rate, which dropped in recent months, to partially recover in November.
The US labour market, buoyed by steady economic growth, continues to outperform. RBC projected that payroll employment will jump by 157,000 in November, rebounding from the hurricane-affected increase of just 12,000 in October. The US unemployment rate is expected to remain steady at 4.1% for the third consecutive month, well below Canada’s rising levels.
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Despite some signs of cooling, such as reduced job openings and lower quit rates, the US labour market remains historically strong. RBC views these changes as part of a “normalizing” trend rather than a significant downturn, supported in part by a large federal budget deficit that continues to inject economic stability.
“The Bank of Canada and US Federal Reserve will take these employment readings into consideration before their final policy decisions of the year in December, the economists wrote in a weekly report. “We continue to expect deeper interest rate cuts will come from the BoC than the Fed in the year ahead, reflecting substantial and persistent underperformance in Canadian economic growth and easing inflation pressures.”
Beyond employment figures, trade data may provide additional insights into Canada’s economic trajectory. RBC predicts Canada’s trade deficit narrowed to $0.3 billion in October, down from $1.3 billion in September, largely due to higher energy exports fuelled by rising oil prices. Meanwhile, the US trade deficit is expected to shrink to $75 billion.
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