The governor of the Bank of Canada said that recent data shows the labour market is cooling.
Macklem said in a speech that the tight labour market conditions have started to ease.
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The unemployment rate in Canada increased from a low in June to a high in October. Macklem said that the sharp increase in interest rates that he orchestrated this year are turning down the heat on an economy that the central bank thinks is growing too fast.
Job vacancies have begun to decline. The sectors that are more sensitive to interest rates have seen the most softened.
Macklem is trying to execute a strategy that many Bay Street economists think is impossible: crushing inflation with higher interest rates without causing a job-killing recession.
There are a record number of job vacancies in Canada in the second quarter of this year. Since March, the central bank's benchmark interest rate has increased by more than three percentage points, posing a risk of a recession and mass firings. Macklem thought the risk was reasonable because vacancies would act as a shock absorber and employers would respond by taking down help wanted signs.
The labour market will come into better balance with more modest spending growth. Price pressures will be relieved by this.
The data supports the governor's argument that job vacancies will cushion the blow of higher interest rates. Canada's job vacancies have gone up to 5.9 per cent from 3.1 per cent. That shows that demand was ahead of the fundamentals.
Tens of thousands of people are being fired by some of the biggest companies in the technology industry. Meta Platforms Inc. slashed more than 11,000 positions this week after cutting 10% of its workforce in July.
Some economists are hesitant to call the vacancies rate a reliable indicator of labour market strength because they think the economy could take another rate hike beating. According to Employ America, vacancies could make the economy appear stronger than it really is, even though labour market indicators show a strong recovery.
Stephen Tapp is the Chief Economist at the Canadian Chamber of Commerce. Whether these job vacancies could absorb the economic effects of higher rates or a market downturn was a key question for Canadian labour market dynamics moving forward.
Tapp believes that the build-up of vacant jobs could act as a shock absorber during a labour market downturn. The base-case planning scenario should not be used for the ideal soft landing scenario.
Tapp warned against oversimplifying the situation, saying vacancies often reflect a shallow pool of qualified workers. If the economy goes into a recession, higher interest rates could cause companies to lay off workers.
Tapp said that a soft landing in Canada's labour market is not likely.
The path to a soft landing from the post-pandemic surge in growth was narrowing. Gross domestic product increased 1.5 per cent in the third quarter, down from a previous estimate of two per cent, according to the monetary policy report. The central bank predicted that the economy would grow at an annual rate of 0.7 per cent in the final quarter of the year and only 0.7 per cent in the next five years.
Sébastien Lavoie, chief economist at Laurentian Bank, said the ratio of unemployed workers to job vacancies might be at a record high, but it doesn't tell the whole story of the labour market. According to Lavoie, the unemployment rate is going to go up to six per cent in three years' time.
Statistics Canada points to job vacancies being at an all time high, while postings on Indeed.ca have declined in Quebec, Ontario and British Columbia. Employers are still interested in hiring even though job postings are high.
Stagflation of the 1970s, where unemployment rose by three percentage points, may be a cautionary tale. Macklem could use this chapter in history to justify a rapid tightening cycle, as an unemployment rate of around six per cent would be decent by historical standards.
There is still an appetite to hire. In October, employers created 108,000 new jobs, compared to Bay Street expectations of 10,000. The economists at the Big Six banks took this as a sign that the economic sky is falling and could add pressure on the Bank of Canada to raise rates.
The Bank of Canada will be keeping a close eye on the pace of wage growth, which rose in the latest jobs reading. Employers will try to make up for salary increases by raising prices because households have more money to spend.
The jobs vacancies buffer depends on how deep and sustained the anticipated recession will be. He said that if the employers in the sectors most affected by labour shortages can't get them back on the payroll, they may think twice about cutting jobs.
St-Ar said that it might help to provide a buffer for job cuts if you are in a sector where it is hard to find workers. You could keep them on your payroll until you don't have a choice.
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