Recent economic reports have suggested the economy is performing surprisingly well – but all may not be as it seems
Canada’s seemingly resilient job market may not be as robust as official statistics suggest, according to a new analysis that questions the accuracy of widely followed employment data.
CIBC economist Andrew Grantham said in a Tuesday report that employment growth has been synthetically inflated by inconsistencies in population counting methods used by Statistics Canada’s Labour Force Survey (LFS).
“Job growth appears to be accelerating again and the unemployment rate has barely increased since trade uncertainties flared up earlier this year. It seems too good to be true. Unfortunately, that’s probably because it is,” Grantham noted.
The discrepancy is attributed to how the LFS counts working-age population compared to quarterly population data. While the LFS has maintained steady population growth figures, quarterly data shows sharp deceleration, largely due to changes in non-permanent residents.
Manufacturing job losses not driving unemployment
Despite widespread assumptions that trade uncertainties and manufacturing job losses are behind rising unemployment rates, Grantham’s analysis reveals a different story. Manufacturing employment has declined by 45,000 positions since January, but unemployment data by sector shows only a 9,000 increase.
“Only 20% of the decline in manufacturing employment appears to have been reflected in the unemployment rate,” the report states. “Some may have retired, temporarily left the labour force to wait out trade uncertainty, or have found work in other sectors.”
Instead, unemployment increases have been driven primarily by new entrants and people re-entering the workforce struggling to find positions, particularly students and individuals previously keeping house.
Regional analysis challenges trade impact narrative
Even in Ontario, where the unemployment rate for prime-aged workers sits 1% above the national average, the increase stems more from difficulties finding work for new job seekers rather than manufacturing layoffs.
While industrial areas like Oshawa and Windsor have seen significant unemployment rate increases, these regions account for only a fraction of the province-wide rise. The Greater Toronto Area, with its diverse economy, has contributed approximately half of Ontario’s unemployment increase.
Implications for monetary policy
If Canada’s labour market proves weaker than official statistics indicate, Grantham suggests this could influence Bank of Canada policy decisions.
“A weaker than advertised labour market should, over time, place downward pressure on core measures of inflation and allow the Bank of Canada to cut interest rates again before the end of the year,” said Grantham.
The Bank of Canada has recently cited strength in LFS employment data, particularly continued job growth in sectors less sensitive to trade uncertainties, as justification for pausing interest rate cuts. However, if these figures are inflated by inaccurate population counts, the employment trend may be significantly weaker than believed across multiple sectors.
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