Canada Employment

Labour Market Beats Expectations, But Underlying Trends Remain Soft

Multiple factors at play in labour report. Canada’s economy added 47,000 jobs in September – well-above the consensus estimate of a 27,000 position gain. At the same time, the unemployment rate edged down 10 basis points to 6.5 per cent, which is the first drop since January. In September, labour gains were largely fuelled by a 33,000-position jump among youth ages 15 to 24. This could partially be attributed to slower hiring among this age cohort over the summer, prompting fewer workers to leave their positions at the start of the school year. Although Canada’s labour market surprised to the upside, underlying indicators continued to suggest ongoing economic weakness. Hours worked fell 0.4 per cent monthly, job openings kept lowering, the employment rate stayed on its downwards trend and average hourly wage growth eased to a 16-month low of 4.6 per cent year over year. As a result, it is still almost all but guaranteed that the Bank of Canada will continue its monetary easing cycle over the remainder of the year and into 2025.

Larger rate cuts remain likely. While a 50-basis-point interest rate cut remains on the table for later this month, strong labour reports in both Canada and the United States could hold the BoC to another 25-basis-point drop. This is largely due to the fact that private sector employment – which the central bank watches closely – saw a 61,000 position jump in hiring, indicating ongoing labour demand. Nevertheless, with GDP growth below potential, inflation now back at the central bank’s 2.0 per cent target and weakness showing in the recently released business outlook survey, larger rate cuts are still being priced in according to interest rate swap markets.

Commercial Real Estate Outlook

Retail sector sees strong monthly gain. The wholesale and retail trade sector noted the largest monthly jump in employment at 22,000 positions. While hiring in the industry is down on a year-to-date measure, this strong uptick in September underscores the healthy performance seen within Canada’s retail property sector. Amid historic population growth, retail sales were up 1.0 per cent year over year in July and up 21 per cent compared with the start of 2020. Retail-space demand has remained extremely healthy as a result. Paired with muted property supply growth, the nation’s retail vacancy rate sat near an all-time low of 1.6 per cent as of the third quarter, making the property type a preferred investment option.

Year-to-date employment gains support office sector outlook. Canada’s economy has added roughly 260,000 jobs year to date as of September, with the largest contributors mainly being traditionally office-using sectors. With space demand being highly correlated to employment gains, some stabilization could occur within Canada’s office market over the coming year. Although vacancy continues to inch up, with preliminary estimates highlighting a 14.2 per cent national vacancy rate as of the start of the fourth quarter, multiple factors lend support to the sector’s outlook. Not only is the country’s historic construction cycle winding down, but more companies are also implementing stricter return-to-work policies. Additionally, falling borrowing costs are set to spur business investment and overall economic growth, further aiding office space demand. Suffice it to say, while vacancy is still expected to remain at an elevated level over the next year, the tide could be turning for the sector at large.

* Through September; ** Finance, insurance, real estate, rental and leasing
Sources: Marcus & Millichap Research Services; Altus Data Solutions; Bank of Canada; Capital
Economics; CoStar Group, Inc.; Statistics Canada