Job market may prove too good to be true: CIBC

When something sounds too good to be true, it usually is — and that may be the case with the Canadian labour market, which likely isn’t as strong as recent data suggests, CIBC World Markets Inc. argues in a new report.

Recent data from Statistics Canada’s closely watched Labour Force Survey (LFS) is signalling surprising strength in the labour market.

“Job growth appears to be accelerating again and the unemployment rate has barely increased since trade uncertainties flared up earlier this year,” CIBC noted.

However, it cautioned that “there’s ample reason to question whether employment growth has really been as strong,” as the data from the LFS indicates.

For one, recent employment growth may have been overstated due to shifts in the underlying population data, which is prone to large revisions.

“If the year-over-year growth rate in population within the Labour Force Survey matched the recent quarterly data, and assuming the employment-population ratio is correct, then job growth over the past year could be cut down to a fraction of what is currently reported,” the report noted.

Additionally, the rise in the unemployment rate can’t be entirely explained by job losses in sectors that have been hit harder by rising tariffs, such as manufacturing, CIBC argued.

In fact, the report said that “only 20% of the decline in manufacturing employment appears to have been reflected in the unemployment rate.”

Many of the workers who have lost jobs in manufacturing may have retired, temporarily exited the labour force or found work in other industries, the report said.

So, the rising unemployment rate likely reflects other factors, such as a tough job market for students and other new entrants to the workforce — pointing to broader weakness in the job market overall.

Ultimately, the report said that “the notion that Canada’s labour market is in good health, aside from understandable weakness in trade-sensitive areas such as manufacturing, is too simplistic and likely incorrect.”

And if the job market proves to be weaker than it looks, this should also give the Bank of Canada the space to cut interest rates again, the report suggested.

“If the Canadian labour market is weaker than advertised, this slack should eventually place downward pressure on core measures of inflation and bring a couple more interest rate cuts from the Bank of Canada later this year,” it said.