by Dominique Lapointe
Following last Friday’s release of Statistics Canada’s November 2017 Labour Force Survey (LFS), the Institute of Fiscal Studies and Democracy (IFSD) has updated its Canada JØLTS analysis for October 2017.
Economic and Monetary Implications
In October 2017, the unemployment outflow rate increased by 19% and the inflow rate increased by 13% (Chart 1). These latest unemployment flows originate from the very strong employment numbers for the month of November. In the last year, 441,000 full-time jobs were created in Canada, the fastest pace of full-time job creation in fifteen years. Nevertheless, remaining “slack” in the labour market (potential workers not currently employed) will continue to be a hot topic of discussion going into 2018. Indeed, the Bank of Canada (BoC) argued in its latest monetary policy report (MPR), and, more recently, in a speech by Governor Stephen Poloz, that wage growth, and indirectly inflation, has been hindered by labour market slack. The central bank highlighted long-term unemployment and falling unit labour costs, among others, as indication of significant slack in the labour market. Conversely, the IFSD is of the view that the labour market gap is generally positive, and that inflationary pressures are impending. For example, this year, wage growth in all age categories has accelerated and youth unemployment rate is near historical lows. Moreover, the IFSD’s estimate of the rate at which people lose their job and enter the unemployment pool, the layoff rate, has reached another historical low in November.
While the labour market keeps beating estimates, the real economy has slowed down relative to the first half of the year. The manufacturing PMI has trended slightly downward since mid-year, real GDP growth has slowed down to 1.7% in the third quarter and the IFSD Nowcast of real GDP growth is forecasting 2.0% for the fourth quarter. This, combined to the Bank of Canada’s estimated “pockets of slack” in the labour market and the fact that the BoC likely wants to assess the full impact of two back-to-back increases in the policy rate earlier this year should give the Bank reason for pause in rising rates at Wednesday’s announcement.
 To see through the volatility, Chart 1 is presented as a 3-month moving average.