Cracks are forming under the surface of Canada’s job market. The country’s job vacancy rate has plunged to an 8-year low, and well below the pre-pandemic rate. The problem looks even more serious when contrasted with the American labor market, warns BMO Capital Markets. Canada’s plunging job vacancy rate isn’t getting much attention with recent employment gains, but it’s a potential headwind that will amplify any economic shock.
US Job Vacancy Rate Stable At Historically Normal Levels
The US Job Openings and Labor Turnover Survey (JOLTS) revealed a surprisingly resilient US job market. The US job vacancy rate fell to 4.4% in June, flat from a year prior. BMO’s calculations show this was the average of the 3-years prior to the pandemic.
“In other words, after easing rapidly from the extremely tight situation in 2022, the job market has more or less stabilized close to pre-pandemic norms,” explains BMO chief economist Douglas Porter.
He warns it’s a “different story in Canada.”
Canadian Job Vacancy Rate Plunges To 8-Year Low, Worse Than Pre-Pandemic
Source: BMO Capital Markets; Statistics Canada; BLS.
Canada’s labor market is eroding much faster and approaching a recession-style situation. The seasonally adjusted job vacancy rate fell to 2.7% in May, down 0.1 points from a month prior and 0.5 points below last year. The rate is at an 8 year low, and significantly below pre-pandemic levels.
“Instead of stabilizing, the vacancy rate has resumed its downtrend,” explains Porter.
Canada’s Plunging Job Vacancies A Headwind Ignored With Job Gains
Canada’s job market has proven resilient in recent years, despite the uptick to its unemployment rate. Canada continues to add jobs—it just hasn’t been able to keep up with its recent population boom. While that issue is starting to resolve, the plunging job vacancy rate presents a serious headwind. Any economic shock that leads to job losses would see a prolonged recovery.
There’s also a good reminder in there for those who have yet to realize that 2020’s rate cuts were uncharacteristic in terms of driving real estate. Rate cuts typically occur when inflation collapses, a result of weakened consumption often resulting from an unemployment uptick.
“As the BoC noted this week, ’the labour market remains soft.’ This is the single most compelling reason to keep the flame alive on rate cuts,” notes Porter.
A note that gently serves as a reminder that lower rates can stimulate consumption, but only for those with a job.