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Cooling Labour Market Limits Improvement in July

Canadian Economics

By: Walter Bolduc

    

  • The survey had mixed results. Compared to June, more consumers expected there will be fewer jobs available in the future, though a greater share of consumers thought now was a good time to make a major purchase. The percentage of consumers who felt their current finances had improved eked down from 12.2 to 11.6 per cent. Consumers who considered their finances unchanged rose from 52.2 to 56.1 per cent and consumers who thought their finances were worse decreased from 33.1 to 28.9 per cent.
  • The percentage of consumers who anticipated their finances would improve in the next six months remained at 16.7 per cent. Consumers who believed their future finances will be unchanged rose by 2.6 percentage points to 53.0 per cent. The percentage of consumers who anticipated worse conditions fell by 1.5 percentage points to 22.3 per cent.
  • A smaller percentage of consumers were optimistic there would be more jobs in the next six months with this share decreasing from 8.4 to 7.6 per cent. Meanwhile, the share of those predicting there would be fewer jobs increased from 26.7 to 28.8 per cent.
  • The percentage of consumers who thought it was a good time to make a major purchase increased from 12.2 to 12.9 per cent and the percentage of consumers who thought it was a bad time fell from 62.8 to 59.4 per cent.

Key insights

A weaker labour market is taking a toll on confidence. Nationally, future job prospects was the only category to have an increase in negative responses in July. Labour market data from June indicated Canada’s labour market is cooling with the unemployment rate up 0.2 percentage points to 6.4 per cent. Total hours worked were also down 0.4 per cent in June, and 0.7 per cent for the second quarter as a whole. While average hourly wages were up 0.3 percentage points to 5.4 per cent year-over-year in June, we expect wage growth to slow over the coming months as inflation cools and the labour market loosens.

Confidence in future finances remains low. Higher interest rates are still top of mind for many Canadians. Housing interest payments on debt rose a staggering 42 per cent in 2023 and have continued to rise in the first half of 2024. Although interest rates are on their way down, many Canadians will be renewing their mortgages at much higher rates than a few years ago, further stoking concerns.

Further Bank of Canada interest rate cuts will foster confidence. The Bank of Canada has cut rates twice to date this year. We estimate the Bank will continue its rate-cutting cycle into next year. Lower interest rates will positively impact all response categories of the ICC. For example, lower rates will incentivize private sector business investment, creating more jobs and improving future job prospects, while creating more favourable financing terms for major purchases. However, it is important to note is that the full effect of monetary policies—such as interest rate cuts—usually take around 18 months to unfold, meaning improvements in confidence will be gradual.

To understand how business confidence has developed, visit our Index of Business Confidence.

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