Jobless rate makes unexpected jump to 6.1 per cent

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Canada’s unemployment rate shot up unexpectedly to 6.1 per cent in March, the highest rate in two years in a clear signal that the jobs market has materially slowed.

Statistics Canada reported the number of employed people in the country dropped by 2,200 last month – which is statistically insignificant. Essentially, it’s a flat reading. But it’s the first negative reading for employment numbers since last July and it comes after a decent gain of 78,000 in January and February.

Clearly, the strong demand for workers that has powered the economy since the pandemic has petered out. But the bottom has not dropped out of the market despite the significant jump in the jobless rate.

This is evident in job vacancy data. The number of jobs that employers say they haven’t been able to fill was at 632,105 in January, according to the latest survey data from Statistics Canada. That’s down from a peak of just over one million in May 2022.

The vacancy rate – the number of vacancies as a share of payroll employees – has fallen to 3.6 per cent. This is the lowest vacancy rate since the beginning of the post-pandemic recovery, to be sure. But it's still slightly above pre-pandemic vacancy rates.

In other words, the job market is not tight, but it’s not too weak either.

There’s little evidence that we’re seeing any major layoffs or that unemployment is abnormally high for the already employed. This is evident in the job separation rate, which can be calculated from the Statistics Canada data by looking at newly unemployed as a share of total employment. The so-called separation rate continues to hover at 2.1 per cent, which is actually below pre-pandemic levels.

So if the labour market isn’t so weak, how can we explain the jump in the unemployment rate, which is up a full percentage point over the past year?

Essentially, new employment is just not keeping up with the new supply of workers, which is largely being driven by international migration (i.e. temporary foreign workers and students).

Even in March, the labour force increased by about 58,000 and is up 571,000 over the past year. Employment is up 324,000 – which is a strong increase at any time. But it’s just not enough to absorb new labour supply.

Is this something to worry about?

A rising unemployment rate is always a concern, even if it is non-permanent residents who are facing the brunt of the joblessness. The growing supply of new workers will create stresses. For example, while people aren’t losing their jobs at an abnormally high rate, those who are losing their jobs are finding it more difficult to find new ones.

The share of unemployed Canadians who found new work in March was 29 per cent. This is well below the average of 35 per cent over the past year.

The good news is that the labour supply numbers will probably begin to wane by the second half of this year once new measures by the federal government to restrict new temporary international migration kick in.