A rise in the unemployment rate in August, coming on the heels of job losses over the last few months, suggests the economy is beginning to slow amid rising interest rates.
The unemployment rate was 5.4% in August, ticking up for the first time in seven months, Statistics Canada reported in its most recent labour force survey on Friday.
That’s up from 4.9% in July, the lowest unemployment rate since comparable data first became available in 1976.
BMO senior economist Sal Guatieri said the economy is starting to show some weakness after remarkable strength in the first half of the year.
“The economy was doing very well up until a couple of months ago and now seems to have hit a pothole,” Guatieri said.
Overall, the Canadian economy lost 40,000 jobs last month in August, with the losses concentrated in the public sector. August also marked the third consecutive month of declines, with a total of 114,000 jobs lost over that time period.
The report says employment gains in professional, scientific and technical services were offset by declines in education services and construction.
However, CIBC said the loss of 50,000 jobs in education likely represents seasonal challenges and may reverse later.
The Bank of Canada is watching for any developments in the economy as it raises interest rates to quell inflation. Earlier this week, the central bank hiked its benchmark interest rate by three-quarters of a percentage point, bringing it to 3.25%.
An economic slowdown is expected as interest rates continue to climb, but the bank has said inflation is still too high for the cycle of rate hikes to end.
“With one more labour force survey before the (central bank’s) October meeting, it still seems likely that at least one more rate hike will be in store before a pause is seen,” CIBC senior economist Andrew Grantham said in an email.
The job losses in August were primarily concentrated among women aged 15 to 24 and people between the ages of 55 to 64, while the labour force participation rate held steady overall.
Average hourly wages in August rose 5.4 per cent compared with a year ago, up from the year-over-year increase of 5.2% in July.
Guatieri said the pace of wage growth “will raise some eyebrows” amid high inflation.
“That will make the Bank of Canada nervous about the inflation outlook, at least enough that we will see another rate increase at the end of October,” Guatieri said, suggesting it could be a half-percentage-point hike.
HSBC chief economist David Watt said looking beyond the headline job numbers shows some “quirks” in the labour market. A closer look at wage growth and employment among 25- to 54-year-olds suggests the labour market is still tight, he said.
“This underlying story still suggests that there’s a lot of underlying strength and momentum in the parts of the labour market that are going to be most important to the Bank of Canada,” Watt said.
Statistics Canada warned that employers are likely to continue to face recruitment challenges as many Canadians reach retirement age. In August, 307,000 Canadians had left their job to retire in the last year, compared with 233,000 a year ago.
The report also looked at the unemployment rate among immigrants who arrived in Canada in the last five years. The unemployment rate for this group was 7.6%, lower than any August since comparable data became available in 2006.
Still, it remains higher than the overall unemployment rate in Canada.
The report also found the percentage of workers looking to leave their job was on the rise. According to the federal agency, 11.9% of permanent employees were planning to leave their jobs within the next 12 months, almost double the rate in January.
For low-income earners, that rate was even higher. Among workers whose average hourly wages were in the bottom 20% in August, nearly one in five say they’re planning on leaving their jobs.
The labour force survey also asked workers about the job features they consider to be essential or very important. The top factor identified by respondents was salary and benefits, with 85.4% of them ranking it the most important factor.
As more people head to the office, Statistics Canada said working exclusively from home was declining while the proportion of people working hybrid was rising.