BREAKING: Canada's Job Market is in BIG F@#KING TROUBLE

Summary

Canada's labor market is facing a significant slowdown, marked by rising unemployment and a lack of private sector hiring. Despite an increase in public sector jobs, the overall economic weakness has forced the Bank of Canada to cut interest rates sharply. This trend reflects a larger, synchronized global economic decline, with the U.S. also grappling with weak hiring. Both countries' central banks are adjusting policies in response, signaling a global slowdown that could lead to further rate cuts. The labor market crisis is not limited to job losses, but rather a profound hiring freeze, signaling deeper economic issues.

Takeaways

• 😀 The unemployment rate in Canada surged to 6.8% in November, the highest since January 2017, excluding 2020.
• 😀 The rise in Canada's unemployment rate was primarily driven by an increase in labor force participation, with many people re-entering the job market after long periods of dropouts.
• 😀 Despite 155,000 payrolls added in November, most of the gains were in the public sector, with private sector hiring remaining weak.
• 😀 The lack of private sector hiring is a key issue, contributing to a broader global economic slowdown as businesses are reluctant to hire.
• 😀 Both Canada and the US are experiencing synchronized labor market weaknesses, with falling labor force participation and rising unemployment.
• 😀 The Bank of Canada has already implemented a 175 basis point cut in rates in 2024, with another 50 basis point cut expected soon.
• 😀 The Federal Reserve is likely to follow the Bank of Canada's lead, cutting rates to address similar economic concerns in the US.
• 😀 Despite rate cuts, both countries are struggling to stimulate demand, as economic weakness persists and the labor market shows little sign of recovery.
• 😀 There is a strong correlation between US and Canadian economic indicators, including CPI and GDP, underscoring the synchronization of both economies.
• 😀 The bond markets in both countries reflect the economic struggles, with Canadian and US bond yields moving in tandem, signaling a global economic slowdown.
• 😀 The primary issue in both countries is not layoffs but the lack of hiring, which is often an early indicator of recessions.
• 😀 The global economic challenges are more interconnected than many realize, and policy responses in Canada and the US are closely aligned as a result.

Q & A

What was the significance of Canada's unemployment rate surge in November 2023?

Canada's unemployment rate surged to 6.8% in November 2023, the highest since January 2017, outside of 2020. This marked a notable shift in the labor market, driven by a significant increase in labor force participation, though many of those seeking work were unable to find jobs, particularly in the private sector.

Why did economists and central bankers struggle to predict Canada's economic performance?

Both economists and central bankers were caught off guard by Canada's economic weakness. They initially predicted moderate rate cuts, expecting stable inflation and steady growth, but were surprised by rapid labor market deterioration and rising unemployment, which led to more aggressive rate cuts than initially forecasted.

How does the labor market in Canada compare to the U.S.?

Canada and the U.S. share similar labor market struggles. In both countries, the private sector is not hiring, leading to a rise in unemployment. While Canada’s unemployment rate hit 6.8%, the U.S. unemployment rate, at 4.2%, likely understates the actual labor market weakness, with a more accurate rate closer to 4.8% when accounting for labor force dropouts.

What does the lack of hiring across both countries indicate about the economies?

The lack of hiring in both the U.S. and Canada suggests that these economies are not in the recovery phase typically expected post-recession. Instead, the economies are showing signs of stagnation or even entering a new recessionary phase, where businesses are not adding jobs, contributing to high unemployment rates and economic weakness.

How has the Bank of Canada responded to the rising unemployment and economic weakness?

In response to the rising unemployment rate and economic weakness, the Bank of Canada has aggressively cut interest rates, reducing them by 50 basis points in consecutive months. By the end of 2023, the cumulative rate cut reached 175 basis points, far more than the 50 basis points initially expected.

What is the significance of the public vs. private sector job growth in Canada’s recent payroll data?

The job growth in Canada has been primarily driven by the public sector, with 45,000 public sector jobs added in November 2023. In contrast, the private sector saw minimal job gains, only 6,000. This imbalance highlights a lack of private sector hiring, which is a critical driver of long-term economic recovery and growth.

Why is it misleading to look at Canada’s official unemployment rate in isolation?

Canada's official unemployment rate of 6.8% is misleading because it doesn't account for the labor force dropouts who have stopped searching for work. When adjusting for these dropouts, the real unemployment rate in Canada could be closer to 7.6%, indicating a much more severe labor market issue.

How do the economic policies of the U.S. and Canada align, and why is this significant?

The economic policies of the U.S. and Canada are closely aligned, particularly in terms of their central bank actions. Both nations have experienced synchronized inflationary pressures, bond yield fluctuations, and unemployment trends, leading to similar policy responses such as interest rate cuts. This alignment underscores the interconnectedness of their economies and suggests that both will likely face similar economic challenges in the future.

What global factors are influencing the labor markets and economies in Canada and the U.S.?

Both Canada and the U.S. are impacted by global economic trends, such as consumer price fluctuations and bond yield movements. The synchronized nature of the labor market issues in both countries suggests that they are both reacting to broader global economic forces, rather than purely domestic factors.

What can we expect from the Federal Reserve in response to Canada’s economic trends?

Given the synchronized economic challenges between Canada and the U.S., the Federal Reserve is likely to follow the Bank of Canada’s lead in cutting interest rates. As Canada's central bank has already reduced rates by 175 basis points, the U.S. Federal Reserve is expected to adjust its policies similarly in the near future, responding to shared global economic pressures.