Focus on the Jobless Rate in Tomorrow's Canadian LFS

Population Changes Are Adding Noise to Jobs Data, Better to Focus on the Unemployment Rate

• Based on Consensus, Friday's Labour Force Survey (LFS) for September is expected to show a modest headline job gain of +5k. We see the potential for a downside surprise relative to this estimate (roughly -35k), but we would also urge caution around reading too much into it. 
• The risk of an undershoot largely reflects distortions related to tighter immigration policies and Canada's slower population growth.  
• Digging a little deeper, employment estimates are derived from a sample survey of households that, in turn, is scaled up based on population size. If the estimate of the working age population shrinks, then measured employment will drop, unless offset by a rise in the employment-to-population ratio.   
• There is good reason to expect an ongoing slowdown in adult population gains in Friday's report that is likely to dominate any change in the employment ratio. The LFS adult population estimates have been slow to capture weakness recorded in the official quarterly demographic statistics so far this year. Over time these trends tend to converge, but in the near-term large gaps can open, especially during periods of rapid population shift. Some narrowing in the gap has been registered over the past few months, but further catchup looks likely in September.  
• For example, in Q2-25, the official Census population gain weakened to +614k (year-on-year), while the LFS clocked in +849.6k. In Q3, the official Census population gain registered +389k, while we expect the LFS to clock in at roughly +640k.  
• For this reason, it becomes important to focus on the unemployment rate (UR) as a better gauge of job market health. The UR has been grinding higher from 6.6% at the start of the year to 7.1% as of August. We expect a slight increase in the UR in the September report, to 7.2%. This would be consistent with a further gradual cooling in job market conditions but certainly paint a less downbeat picture than the employment figure.  
• Unlike the bond market, the Bank of Canada is unlikely to react to a significant drop in jobs if caused by swings in population estimates. Instead, the central bank will put more weight on other, more stable job market indicators such as the unemployment rate, vacancy rate, and a number of other indicators it closely monitors in its labour market dashboard.

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