economy
RAISING DOUBT ABOUT FUTURE WAGE GROWTH With a soft labour market and clouds of uncertainty still hanging over the Canadian economy, businesses expect fewer increases to their labour costs over the next year.
As we noted previously, incomes have been growing in Canada at an elevated rate. Currently, average weekly wages are rising by 4.0% on a year-over-year basis, which in turn puts upward pressure on inflation. So it’s with great interest that we, and the Bank of Canada, look to the latter's Business Outlook Survey for forward-looking data on expected labour costs. In the most recent survey, the majority of firms surveyed (57%) indicated that they expect lower wage increases over the next 12 months, the second-most (after Q3 2023) since the Great Recession and an increase from the previous quarter’s 43%.
We should note, this would still mean rising incomes for workers, just at a slower pace than the previous year and moving more in line with the rate of inflation. Further, just 11% of firms are expecting higher labour costs over the next year, which is the second-lowest such response since 2009 and down from 25% last quarter. These responses give the Bank of Canada a clear indication (alongside the more broadly weakening labour market we discussed earlier) that wage growth is likely to slow in the coming months—an important feature of an evolving economy as it works to maintain 2% inflation.
EXPECTING LESS OF MORE
90%
“Over the next 12 months, are increases in labour costs expected to be higher, lower or the same as in the previous 12 months?”
80%
70%
60%
57%
50%
40%
32%
30%
20%
11%
10%
0%
2018
2019
2020
2021
2022
2023
2024
HIGHER
LOWER
SAME
DATA: PERCENTAGE OF POLLED BUSINESSES EXPECTING HIGHER, LOWER, OR THE SAME INCREASES IN LABOUR COSTS, NEXT 12 MONTHS, CANADA SOURCE: BANK OF CANADA BUSINESS OUTLOOK SURVEY, Q2 2024
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