TD forecasts ‘softish’ landing for labour market

The Canadian unemployment rate could rise to a peak of 6.7% over the next year, according to a new forecast from TD Economics.

In a report released Wednesday, the company placed a 50-60% probability on a “softish” landing for the tight labour market — a slight overshoot of the level required to balance labour supply and demand.

“As such, we anticipate net job losses, but a comparatively modest 50,000, with the timing of broad job cuts likely commencing by the end of this year,” it stated.

The report, authored by TD Economics director and senior economist James Orlando and research analyst Tarek Attia, points out that hiring has slowed to 12,000 a month in July from 80,000 a month in early 2023, even as the country’s population-fueled labour pool grows. Unemployment is up half a percentage point this year to 5.5%, and the number of unemployed workers has shot up by 123,000 this year.

“Further loosening is needed,” the report states. “By our estimates, the unemployment rate needs to reach 6% (if not higher) to bring balance to the job market.”

According to the authors of the report, the chances of a hard landing — with job losses of about 500,000 and an unemployment rate of 7-9% — is pegged at 20-30%.

The report allows for a 10-20% chance of a soft landing, one which would contain unemployment at 6% and impose minimal job losses.

“While this sounds like a fairy tale scenario, one where balance is achieved without inducing substantial layoffs, it would occur at a glacial pace,” the report states. “By our calculations, a perfect landing would mean that balance would only be restored in the spring of 2024,” with wages hitting more normal levels at the end of next year.

“This would keep total spending in the economy elevated, elongating the current high inflation environment,” it said.

The report said the Bank of Canada has been clear about its determination to see further loosening in the job market before it can be confident that inflation will return to the 2% target.

“While there are currently buffers in place to prevent a hard landing, the economy is entering a delicate stage — one that will require greater attention from the Bank of Canada as it attempts to land the plane as softly as possible.”

Allan Janssen

Allan has been a journalist for nearly 40 years, writing for daily newspapers, consumer magazines and trade publications both in Canada and abroad. He has been with Newcom’s financial team since 2020. Email him at allan@newcom.ca.