\nArticle content<\/h2>\nNew paradigm<\/h2>\n Once the big brains at the Bank of Canada and elsewhere get the current inflationary episode figured out, they probably will spend some time thinking about a new working definition of full employment.<\/p>\n
Ahead of the Great Recession a decade ago, a number of around six per cent was thought to be about as low as Canada\u2019s jobless rate could go before that much hiring started to create more demand than Canada\u2019s economy could handle, and thus stoking inflation.<\/p>\n
With that in mind, consider the unemployment rate in June: 4.9 per cent in June, compared with 5.1 per cent in May.<\/p>\n
The rate has now been below six per cent since the end of 2021, and had effectively settled at around 5.5 per cent ahead of the COVID crisis. To be sure, given that inflation is testing eight per cent, it\u2019s safe to assume that economists will conclude that 4.9 per cent is more than Canada\u2019s relatively unproductive suppliers of goods and services can handle. But it does feel like Canada has entered a new phase, as technological disruption and a shrinking number of older workers combine to create persistently strong demand for workers.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\nWages<\/h2>\n Employment actually dropped by about 43,000 positions in June, Statistics Canada said. (The jobless rate, which measures the number of people who say they are actively seeking employment but can\u2019t find a job, dropped because fewer people were looking for jobs.)<\/p>\n
That\u2019s normally the headline number. But the most important indicator in Statistics Canada\u2019s monthly Labour Force Survey these days is wage growth. That\u2019s because the central bank is watching wages closely to make an educated guess about whether inflationary pressures that have been concentrated in prices for goods are spreading. If wages accelerate too fast, the Bank of Canada will see that as evidence that expectations of entrenched inflation are taking root, raising the odds of a self-fulfilling spiral. Central bankers have only one way to break such a psychology: higher interest rates.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n <\/p>\n\n Soaring inflation expectations raise odds of super-sized Bank of Canada hike <\/span> <\/h3>\n<\/li>\n Canada to fall into ‘moderate and short-lived’ recession next year, RBC warns <\/span> <\/h3>\n<\/li>\n Canada’s trade surplus just blew away expectations <\/span> <\/h3>\n<\/li>\n<\/ol>\n <\/section>\nAverage hourly wages surged 5.2 per cent from June 2021, compared with the year-over-year increase of 3.9 per cent in May. That\u2019s slower than inflation, but high by recent historical standards. Individuals getting the raises probably are happy, but Bank of Canada Tiff Macklem probably will be fretting about that number as he considers what to do with interest rates ahead of his next policy announcement on July 13.<\/p>\n
Bottom line<\/h2>\n The post-pandemic hiring boom probably has peaked. The drop in employment offset May\u2019s gains and was the first decline unassociated with COVID restrictions since the start of the pandemic. Also, it\u2019s hard to imagine the jobless rate can go much lower. Our desire to spend is bumping up against our ability to supply goods and services. Since there\u2019s no easy way to ramp up supply of labour \u2014 or boost productivity \u2014 in the short term, the Bank of Canada will feel it has little choice but to curb demand, even if that means triggering a recession.<\/p>\n
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