The story behind Canada’s labour market trends

While Canadian employment data in March was solid, with the economy delivering 32,300 net new jobs and the unemployment rate remaining at its record low of 5.8%, some economists at the big banks weren’t overly impressed.

That was partly due to last month’s gains in full-time work being balanced out by a decrease in part-time jobs, and to hours worked remaining soft.

Read: Surge in full-time jobs holds Canada’s unemployment rate steady

But there’s good news, says National Bank senior economist Krishen Rangasamy in a Friday report.

“There is some evidence Canada’s labour market is becoming more efficient. The Beveridge curve, the relationship between the jobless rate and the job vacancy rate […] is indeed moving closer to the origin,” he writes.

Even with an unchanged job vacancy rate, he adds, “the jobless rate has managed to fall by half a percentage point since Q2 2017 […].” This is evident nationally and in Canada’s largest provinces.

What this means, says Rangasamy, is “workers are finding jobs without needing a higher vacancy rate, a sign that labour market mismatches are diminishing.”

Hiring pace is strong

Some slowing of job growth is likely to occur in 2018, but economists at Scotiabank appear optimistic in a separate trends update report from Friday.

“Last year saw the strongest pace of hiring in a decade, with the vast majority of the new positions in full-time roles,” the report says, and the unemployment rate has dropped to a 43-year low. That’s “equivalent to 4.8% using the same methodology that is standard in the United States, where the unemployment rate is 4.1%.”

Going forward, it adds, “Accelerating wage gains should sustain healthy income growth even in the face of more muted hiring.” Plus, “[…] legislated minimum wage increases this year and in 2019 in nine of 10 provinces are expected to take wage growth to 4% in 2018 and keep it around 3% in 2019. Combined with employment gains, overall earnings growth for Canada as a whole is set to exceed 5% in 2018.”

This growth will continue to buoy consumers, the report says, leading to cooler but healthy housing demand—even with new mortgage rules—and “strong household spending.”

Read: Canadians reveal highest home purchase intent in 8 years: poll

Looking at the economy overall, the report says rates and uncertainty tied to trade tensions will both rise.

In the U.S., U.K. and Canada, conditions “continue to point to the need for higher interest rates,” with all three countries “expected to hike interest rates two more times this year.”

The Bank of Canada will be prompted by inflation pressure. After this year’s two rate hikes, which are expected in Q3 and Q4, the bank calls for three in 2019: in Q1, Q2 and Q4.

Also read:

How banks differ on future BoC rate hikes

Firms positive about future, but some see moderation ahead: BoC survey