Economic forecasts anticipate that the unemployment rate in Canada will increase to 7.2% in September. That’s up from 7.1% in August. This increase is unprecedented. Perhaps even more important, it shapes the political environment in which the Federal Reserve (the Fed) makes economic policy decisions in the United States. In all likelihood, Statistics Canada will soon release the official employment data to confirm these tentative findings. This data will finalize the Unemployment Rate and provide a window into the labor market’s situation today.
The Unemployment Rate is one of the key indicators utilized by the Fed to assess economic conditions and make informed decisions regarding interest rates. When unemployment increases dramatically, it tends to force the Fed’s hand. In an attempt to boost the economy and encourage more borrowing, they’ll cut interest rates. Movements in this metric are what drive changes to Canadian economic policy. On top of that, they have vastly outsized impacts for the U.S. economy.
So no wonder economists see the Unemployment Rate as the most important single measure of economic health. They track inflation, for example, in their judgment of the state of the economy overall. A rising Unemployment Rate can be a sign of widespread economic distress, which results in diminished consumer spending and investment. As such, it can shape the value of the U.S. Dollar (USD). Further, given how closely integrated the two countries are through trade and business activity, which increases the negative impact.
As Canada prepares to roll-out its employment figures, analysts are understandably on edge. They want to know how this anticipated increase in the Unemployment Rate might affect longer-term economic trajectories. The impact doesn’t stop at Canada’s borders – it is affecting U.S. monetary policy and U.S. market perceptions.
The projected increase to 7.2% is a worrying sign of things to come for Canadian workers. This ongoing moment poses some critical questions around labor market resiliency. Even a relatively high unemployment rate for too long can rattle economic confidence. This deceleration in development, which affects both the U.S. and foreign markets equally, creates several barriers.