Economists weigh in on surprise August jobs gain

The Canadian economy added double the number of jobs economists had forecasted for August, but strength reflected in the figure could be misleading, according to one economist – while others warned about inflation risks from accelerating wage growth.

Statistics Canada reported 40,000 jobs added in August, blowing past the 20,000 estimate from economists surveyed by Bloomberg.   Brendon Bernard, senior economist at Indeed, told BNN Bloomberg that rapid population growth helped carry the jobs figure higher – one reason he is hesitant to consider the figure an indicator of labour market strength.   “This isn’t to say that the 40,000 number isn’t strong, but what it’s saying is that we have to revise up what our baseline is for a solid jobs report when the population is growing so quickly, because more people means more potential workers,” he explained in a Friday interview.  The unemployment rate held steady at 5.5 per cent in August, following three straight monthly increases, according to Statistics Canada’s figures. The median jobless rate estimate from economists surveyed by Bloomberg was 5.6 per cent.  WAITING FOR WEAKNESS   Bernard cautioned that while the jobs data was positive, he is waiting for signs of weakness in to show in Canada’s labour market as the economy battles with inflation and an economic slowdown.    “Another month where we’re kind of waiting for those cracks to show,” he said.    Even with a higher-than-anticipated job gains, Bernard points out that the labour market is not as strong as it was a year ago.    “I do think the Canadian labour market isn’t chugging like it was back in 2022 or (the first quarter) of this year,” he noted.    He pointed to lack of productivity and a general economic slowdown for the dip – and he anticipates more labour market weakness ahead.    “The underlying drivers are there to cause a deceleration,” he warned.

WAGE ACCELERATION    Wage growth accelerated to 5.2 per cent in August, beating expectations for a 4.7 per cent gain and up from 5.0 per cent a month earlier, the data showed.    James Orlando, director and senior economist at TD Economics, said rising worker compensation will complicate the Bank of Canada’s fight against inflation and weigh on the economy.   “When workers are demanding higher wages, businesses see those wages, they see their costs rising, they usually pass that onto consumers and that really is the source of inflation that we have right now in Canada,” he told BNN Bloomberg on Friday.    “It makes the Bank of Canada’s job a lot harder and it risks that they need to raise interest rates even higher then they already have,” he added.    Another economist agreed with Orlando’s wage growth concerns.    “From an inflation control perspective, another acceleration in the growth in permanent employees’ wages is troubling,” Marc Desormeaux, principal economist at Desjardins, wrote in a note to clients on Friday.    In addition to the growth in headline wages, (accurate?) other individual sectors saw wage growth reaccelerate last month, Desormeaux pointed out.   WHAT DOES IT MEAN FOR THE BANK OF CANADA?   Despite the strong gains in job numbers and wages, Desormeaux does not think August’s labour force data will change the Bank of Canada’s plans at its October meeting, when he predicts the central bank will keep rates on hold again.   “Canadian consumers and businesses have yet to feel the full effects of prior hikes, and there is mounting evidence that economic growth and inflation are cooling,” he said.