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Job Market is Tight, Does it Lead to Wage Growth?

General Faizal Garasia 6 Jul

December 2018 shows modest job gains and an unemployment rate that remains at a record-low 5.6%, according to Statistics Canada’s updated Labour Force Survey. There is a minor increase from the prior month, 9,300 new jobs were generated in December.

However, economists’ expectations of 5,500 jobs and a jobless rate of 5.7% have been beaten by December’s rise. This is a general sign of weakness because all of the warm increase last month was in part-time and self-employment. Wages remained idle and full-time work fell in December for the first time in three months.

The Increase in Employment

Employment increased in Newfoundland and Labrador, while it dropped in Alberta, New Brunswick, and Prince Edward Island in December. In other provinces, there was a little change in new jobs. They recorded increases in manufacturing, transportation, and warehousing, as well as in health care and social assistance. In wholesale and retail trade, there were job losses, especially in the Ontario province.

The economy added 163,300 jobs for all of 2018, all of them full-time, for a 0.9% increase representing a significant slowdown from the pace of job growth in 2017 when the economy was much stronger. In 2017, employment was raised by an out-sized 427,300 and has average annualized gains of 225,000 workers since 2010.

The Dropping Unemployment Rate

It is not surprising that labor shortages are emerging and businesses are having trouble filling job openings with the unemployment rate dropping to its lowest level since comparable data collection began in January 1976. The warm pace of wage growth is surprising. December’s wage growth reading was a weak 1.49% annual rate, well below the inflation rate even with the very tight labor market. Decelerating steadily since its May peak of 3.9%, year-over-year average hourly wage growth for permanent workers was only 1.46%.

The Worst Year for Real Estate

The local real estate boards in Canada’s biggest housing markets released data this week showing home sales fell to decade lows in 2018 reflecting higher interest rates and stricter mortgage rules.

In 2018, the sales in the GTA fell 16% while the average price decreased by 4.3% in Toronto. Since the financial crisis in 2008, this is the worst year for sales in Canada’s largest city. Full-year sales fell 32% in Vancouver, the lowest since 2000 and 25% below the 10-year average. Prices for detached homes in Vancouver dropped at least 10%.

Sales dived in the first half of 2018 after the federal government imposed more stringent qualifying rules for mortgages. Sales in Vancouver continued to suffer even while Toronto began to recover in the second half, as the British Columbia government introduced more measures to prevent speculation.