As I have discussed in the past few months, it has become pretty apparent that Canada is slowly trending towards a federal election in the near future.
Whether it comes at the natural end of this government — or sooner — the political discourse around these imminent elections has been ramping up rapidly. Parties are trying to find strategic edge through different issues while MPs have been extremely proactive in meeting with constituents over the summer.
As we get closer to a new Parliamentary session, the economic context in which these politicians are operating is a bit different than what it has been over the last 12 months.
In the spring, it seemed as if every interaction in the House of Commons was structured around the affordability crisis and the rise of inflation. These are still major problems for our country, but there is one trend that has appeared during the summer and it could become one of Ottawa’s main political divides — and it could quickly become a problem.
This economic theme of importance, macroeconomically speaking, is the health of the current Canadian labour market.
For a while, pundits and experts have downplayed the potential of an economic crisis by saying that Canadians were working and getting well paid. Since then, it is fair to say that the job market has been weaker with multiple important employers, mostly in the private sector, laying-off hundreds of Canadians.
Actually, in this very column, I have been pretty vocal about the need to be more nuanced and a bit more comprehensive when discussing the Canadian labour shortage.
Variations in the labour market are also hard to interpret, since private sector jobs went down while the public sector hired more than 41,000 new employees last month.
For example, an economic contraction might not directly solve the complex puzzle that auto dealers have been facing when trying to fill key spots for their businesses. Canada’s population is aging and waves of layoffs might not necessarily mean that the trained and certified workforce is being redistributed towards the needs of businesses.
While the unemployment rate held firm at 6.4 per cent in July — the highest level since September 2021 — this marks the second month in a row where Canada recorded a net-loss in jobs.
Variations in the labour market are also hard to interpret, since private sector jobs went down while the public sector hired more than 41,000 new employees last month. On top of that, the wholesale and retail trade industry led all sectors for the month of July with more than 44,000 jobs being lost.
Bank of Canada officials have mentioned how tricky it can be to cut interest rates while dealing with a softening job market. Essentially, reducing interest rates should lead to a small bump in consumption and help keep our economy’s growth going, but that rebound might be delayed or mitigated by Canadians losing their jobs.
Additionally, with the most recent announcement that the central bank has cut interest rates down to 4.25 percent, it seems apparent that the Canadian economy is walking on a tight line where you need further reduction in inflation without simultaneously limiting the capacity for growth.
One economic variable that has provoked the much-needed cautiousness from the Bank of Canada has been this slow degradation of the labour market. As the Bank of Canada Governor Tiff Macklem mentioned in his press conference after the rate cut: “inflation being too weak is factoring in our interest rates decisions…. The runway is in sight but the soft landing hasn’t happened yet.”
The risk of disinflation is certainly something new in the general portrait of the Canadian economy, and expect multiple party leaders to take a stab at it by framing it in a way that’s beneficial to their political organizations. As we are closing in on a federal election, it is more than likely to see politicians capitalize on the fact that more and more Canadians are unemployed and that this phenomenon is a symptom of a non-dynamic Liberal-led economy.
Unfortunately, this economic discussion might also rapidly become a political debate, leading to more aggressive partisan stances on new immigrants, and the impacts of high immigration levels on Canada’s job and housing market.
This is why it’ll be fascinating — and potentially frustrating — to track how politicians slowly start to engage on the labour market situation, as nuance isn’t traditionally part of the approach used in the House of Commons.
While some industries could very well be going through a major phase of layoffs and financial readjustment, some others might remain in dire need of qualified and skilled workers.
There are probably automotive dealers who have had to make difficult general staffing decisions while, at the same time, still requiring new auto technicians to come in and eventually replace older employees.
This economic dynamic has not been mentioned and covered a whole lot recently, but expect it to pick up steam over the next few weeks as more and more politicians and media personalities start to become aware of it.
Hopefully, the debate is rooted in economic data, industrial challenges and sectoral differences instead of being entangled within a few short-sighted partisan positions.
There is also a strong possibility that the eventual election process brings forward unexpected issues, unrelated to Canada’s economic health and prospects, leaving the important discussion on labour shortages, working visas and immigration levels, aging population, and rising unemployment to the experts and to those with significant amounts of skin in the game.
That would be, frankly speaking, an anomaly in Ottawa. Here’s to hoping and to a new exciting parliamentary session in our nation’s capital.
