Economists predict little change in unemployment this Friday, despite economic slowdown — here's why the job market is so resilient

As the Canadian economy faces a risk of recession in early 2024, "labour hoarding" is the trend that might be keeping your job safe, according to economists. On Friday, Statistics Canada is set to release its December Labour Force Survey. This is the final piece of labour market data for 2023 that will help inform economic predictions — and, consequently, central bank decisions — in the year ahead.

Several economists surveyed by the Star are predicting little to no change in unemployment since November. Scotiabank is expecting only a slight uptick in the unemployment rate in December, while BMO and Capital Economics forecast it will remain unchanged at 5.8 per cent, which is still below historical levels.

Economists also estimate the economy added between 15,000 to 25,000 jobs last month. The consensus is that the job market has proven surprisingly resilient, despite the economy losing steam under the pressure of several by the Bank of Canada over the past two years. One reason behind this, economists say, is companies are engaging in labour hoarding by maintaining head counts, while scaling back hiring and layoffs, as they try to make do with what they have during the economic downturn.

The trend will likely “characterize the private sector” in 2024, said Derek Holt, vice president of Capital Markets Economics at Scotiabank, in a report. Most economists agree. “Companies are still worried that they won't be able to find enough workers in future, and therefore they’ll hang on,” said Jim Stanford, economist at the Centre for Future Work.

“This is one possible explanation for this strange situation where the economy is not growing, but employment has continued to grow,” he added. (Stanford emphasized that strong immigration, but low productivity levels, are also significantly contributing to this phenomenon.) Labour hoarding results from companies being simultaneously burdened by lower consumption and a widespread .

Take small businesses, for instance. According to a December survey by the Canadian Federation of Independent Business, 45 per cent of small business owners said they are concerned about insufficient domestic demand for their goods and services. But there is another problem keeping them up at night: 50 per cent of small businesses said a shortage of skilled workers limited their ability to increase sales or production last month.

Meanwhile, 26 per cent of them reported that a shortage of unskilled or semi skilled labour hurt their operations. “Some of these shortages are structural and these companies don't want to necessarily lay people off because of the cost of rehiring people,” said Stephen Brown, deputy chief North America economist at Capital Economics.

“If they've got people in the business already, maybe they can be retrained to fill holes elsewhere,” he added. The pandemic caused labour shortages , from accommodation and food services to health care and manufacturing. Most sectors haven’t fully recovered. Job vacancy rates, or the number of job vacancies as a percentage of labour demand, are falling but remain higher than pre pandemic levels.

In the third quarter of 2023, Canada’s job vacancy rate was 4.1 per cent compared with 5.6 per cent in the same quarter in 2022, and 3.3 per cent in 2019, according to Statistics Canada. Another factor contributing to labour hoarding are "greying" industries with a significant portion of workers nearing retirement and soon exiting the labour force entirely, said Douglas Porter, chief economist at BMO.

As a result of labour hoarding, economists are expecting modest layoffs in the first quarter of 2024. But they warn that this can quickly change if the downturn worsens unexpectedly in the event that interest rates remain high..