Posthaste: Talk of a recession is growing in Canada

Talk of a Canadian recession is cropping up in the notes of one top Bay Street economist.

“Never before in the annals of recorded Canadian economic history has the economy managed to escape an official recession with such a dramatic move off the cycle low,” David Rosenberg, chief executive at Rosenberg Research and Associates Inc., said in a note, referring to the dramatic downturn in Canada’s labour picture.

Among the sobering numbers from Friday’s labour force survey was a loss of 66,000 jobs in August . That, coupled with the loss of 41,000 positions in July, means the economy has shed a net 40,000 jobs since the beginning of March, which is “the steepest downturn since August 2020,” he said.

There’s more. The private sector continued to shed positions in August from July, while full-time

employment also pulled back. “This is key because it is full-time employment that is ultimately the driver of

consumer confidence and spending,” Rosenberg said. More broadly, only 65 per cent of people who started looking for work over the past 12 months were able to find employment as the level of joblessness rose by nearly eight per cent. If not for the fewer people hunting for jobs, he estimates Canada’s

unemployment rate would have risen to 7.2 per cent rather than 7.1 per cent. As it is, the unemployment rate has soared 230 basis points from the “cycle low” of 4.8 per cent in July 2022.

The job market is exhibiting some other recessionary characteristics, too. Desjardins Economics, in a report last Thursday, said the current

youth unemployment rate “is now at a level more commonly seen during a recession.” The unemployment rate for those aged 15 to 24 in August was 14.5 per cent, according to Statistics Canada, compared to nine per cent in July 2022.

Youth unemployment is typically higher than that for workers aged 25 to 54, the Desjardins economists said, adding that younger workers tend to bear more of the brunt during times of economic uncertainty and weakness.

The economists, Kari Norman, LJ Valencia and Randall Bartlett, said the poor prospects for young people are something of a canary in the coal mine.

“Looking back over the past half-century, we see that each of the previous upticks in Canada’s youth unemployment rate corresponded with a recession,” they said. “The gap between youth and core‑aged unemployment rates also widened during economic downturns.”

Young people are the most vulnerable when the economy is not meeting its output potential, especially since their work is often part time, seasonal and “precarious.” They could also be bearing the brunt of an increase in foreign workers,

artificial intelligence and the rise of gig work. The sluggish data coming out of the United States is another reason Canadians should be fearful, given that approximately 70 per cent of Canada’s exports flow to the U.S.

Rosenberg said recessionary shadows are dogging the U.S. labour market based on that country’s poor jobs report, which also came out on Friday.

“This is the sort of job market pattern one typically sees before an official recession takes hold, but nobody seems to believe an economic downturn will ever occur again,” he said. “The bull market remains in hubris and complacency.”

The U.S. economy added 22,000 jobs in August, well off the estimates for 75,000 additional jobs, while the supply of people available to work continued to build in August from July.

“What really stood out,” Rosenberg said, was the ongoing revisions to the job numbers in June. Those numbers — infamous for leading to the firing of the head of the Bureau of Labor Statistics — now indicate a loss of 13,000 positions compared with a gain of 147,000 when they were first released, and a preliminary revision to an almost negligible gain of 14,000 positions.

“Adding to the angst and anxiety evident in this report was the news that full-time employment from the companion Household Survey collapsed by 357,000 after a 440,000 plunge in July,” he said, adding that almost one million full-time jobs have disappeared over the past four months.

“The Household Survey is definitely flashing a recession signal, and the payroll survey is not far behind,” he said.

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Today’s Posthaste was written by Gigi Suhanic with additional reporting from Financial Post staff, Canadian Press and Bloomberg.

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