Thus far, labour market weakness has been relatively “soft”: more a rebalancing of supply/demand imbalances than anything portending a contraction. Declining demand for labour has been mainly visible in an incremental reduction in job openings and lower hiring, but, so far, we haven’t seen any rapid acceleration in layoffs, especially permanent ones. The gradual increase in unemployment has been largely due to an increase in labour supply, thanks to a higher participation rate, especially among younger age cohorts and immigrants. Consequently, wage growth has progressively cooled and it is set to moderate further as many leading indicators suggest. Signs of further weakness are already visible: employment growth, recently revised down with payrolls, has been driven by non-cyclical sectors like education, health care, and government; while, in cyclical sectors, it has been less exuberant in recent months. Continuing claims have shifted higher and stabilised around a higher level over the last few months. Similarly, layoffs are beginning to rise and the duration of unemployment is lengthening. As wage growth has been moderating, workers are no longer switching jobs as before.

Nonetheless, while all of these indicators are down from their peak levels, most of them are not at typical recessionary levels yet. We remain mindful, however, that in the past when growth slowed, labour market deterioration accelerated. Thus, looking ahead, the statistics related to employers’ behaviour, particularly the pace of permanent layoffs, will be key indicators to watch – and will determine the difference between a soft patch and a deeper downturn.

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