Canada Employment

Mixed Employment Results Temper Market
Expectations for First Interest Rate Cut

Labour market outperforms. Canada’s economy added 90,400 jobs in April, which was well above the consensus estimate of 18,000 and represented the largest monthly increase since January of last year. While this strong headline reading could push back the timing of interest rate cuts, underlying data continued pointing to a loosening labour market. The surge in employment was not enough to bring unemployment down as the jobless rate held at 6.1 per cent amid ongoing population gains outpacing job creation. This has brought labour supply and demand back to a more balanced level, causing year-over-year growth in average hourly earnings to drop to 4.7 per cent in April. This softening in wage growth leaves the door open for a June interest rate cut. However, this strong labour market print pushed back the market-implied view, with July now being priced in as a more likely time to cut first.

Economy continues to grow. Canada’s economy has been more resilient than many expected. After a slight contraction in GDP in the third quarter of last year, economic growth has bounced back. The economy returned to positive growth territory in the final three months of 2023, and preliminary estimates suggest expansion continued in the first quarter of this year. A 0.8 per cent monthly rise in hours worked in April also provides early evidence that the second quarter began in a growth orientation. With borrowing costs largely expected to fall over the second half of this year, economic momentum is likely to build heading into 2025. This will lend support to commercial real estate space demand across the property spectrum and help facilitate an uptick in investment activity.

Commercial Real Estate Outlook

CRE performance benefits from labour market characteristics. Employment data in April indicated ongoing job creation, above-average wage growth and continued record year-over-year population gains of 3.3 per cent. These factors all bode well for commercial real estate space demand. Not only does a healthy labour market and robust population growth drive multifamily demand, it also supports strong consumer spending. Retail sales were up 21 per cent when compared to early 2020, and e-commerce spending was up 75 per cent as of February. As a result, the apartment, grocery-anchored retail and industrial sectors have all recently witnessed vacancy rates near or at all-time lows, making them preferred investment options. While total dollar volume transacted among major commercial property types was down by over 20 per cent annually in 2023, these select assets have seen their share of dollar volume rise over the past few years, given these strong underlying demand dynamics. 

Hotel-related employment sees strong gains. After losing 27,000 positions in March, the accommodations and food services sector partially recovered by adding 24,000 jobs in April. Employment remained 8.0 per cent below the average level seen in 2019, but this uptick in hiring lends support to ongoing hotel room demand. While transient leisure travel is normalizing, consumers and businesses are continuing to prioritize travel to a greater degree than in previous downturns. The trailing 12-month occupancy rate as of March is hovering just below the 2019 level, which has fueled revenue growth. The nation’s average daily rate was up 7.9 per cent year-over-year as of March, while revenue per available room grew by 9.6 per cent.          

* Three-month moving average; ** Trailing-12-months through March
Sources: Marcus & Millichap Research Services; Altus Data Solutions; Canada Mortgage and Housing Corporation;
Capital Economics; CoStar Group, Inc.; Statistics Canada