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Duration: 4:28

Level: Beginner

The Unemployment Rate lesson discusses where to find it, how to forecast it, how it’s influenced, and how it influences financial markets and the economy. The unemployment rate provides an indication of how tight the Canadian labor market is. Or in other words, it tells us how easy or difficult it is for folks to find work.

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Study Notes:

Canada’s unemployment rate reflects the tightness of its labor market. The rate of unemployment is defined as the unutilized supply of labor, the number of unemployed individuals divided by the labor force. An unemployed person is generally defined as someone who is without a job but has actively sought employment within the last four weeks and is available to start working. The labor force is the total number of unemployed and employed individuals. Unemployment is published within the monthly labor force survey report. Detailed information is provided for each age group, gender, duration, province, and metropolitan area. Since some industries are seasonal, such as retail, construction, and travel, the data is seasonally adjusted. Unemployment is calculated by Statistics Canada after field interviewers administer surveys with approximately 54,000 households. The data release is generally published on the first Friday of each month at 8:30am Eastern time. Statistics Canada measures employment to support informed decision making made by individuals, businesses, non-profits and governments.

As an integral indicator of progress and productivity in the economy, the report provides valuable information on how easy or difficult it is to find work. Workers can find employment swiftly if unemployment levels are low. In contrast, when unemployment rates are high, it signals a lack of job opportunities. As employment and productivity decline, their negative effects ripple domestically and throughout international economies. In an economy with fewer jobs, people are generally not spending as much, resulting in reduced corporate revenues and rising layoffs. As a result of the globalized nature of the global economy and the notable influence of Canada’s largest trading partners, a weakened Canadian economy results in a weakened global economy. In Canada and globally, the unemployment rate increased during the 2008 financial crisis and the COVID-19 recession as consumer spending declined.

Forecasting the unemployment rate can be done using leading economic indicators, such as hours worked, building permits, and consumer and business sentiment, since these indicators tend to weaken prior to employment dropping, the unemployment rate rising, and the economy decelerating. The new orders and employment aspects of the Purchasing Managers’ Index for manufacturing show how demand and employment are doing in this capital intensive and interest rate sensitive sector. In addition, tracking trends in retail trade to determine if joblessness might follow softening data is helpful. Valuable insights can be gained from company earnings calls for information regarding hiring plans, layoffs, hiring freezes, etc., since these tend to occur prior to the overall economy weakening.

Market participants place a higher value on the number of jobs added in the previous month relative to the unemployment rate because those numbers are more directly connected to growth and productivity. Unemployment may sometimes be misleading as a result of an aging population and/or discouraged workers, which reduce the labor force, the denominator that partially determines the unemployment rate.

Markets may be affected by the unemployment rate release. They may react negatively to readings above expectations, while the markets may respond positively to readings below expectations.

Monitoring the unemployment rate is crucial since it provides an indication of how tight the Canadian labor market is and its implications for the global economy.

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