Aug
Canada jobs market took an unexpected hit for the second straight month in July, shedding 2,800 positions, according to Statistics Canada’s latest report released on Friday. The unemployment rate remained unchanged at 6.4%. This is its highest level in over two years and defies expectations of a slight increase to 6.5%.
Economists surveyed by Bloomberg had anticipated a much different scenario, forecasting the addition of 25,000 jobs. The disappointing job figures raise questions about the strength of Canada’s labor market and suggest that the country’s economic recovery is facing challenges.
Wage Growth Decelerates
Adding to concerns, wage growth for permanent employees slowed to 5.2% in July, down from 5.6% in June, although it still exceeded expectations of 4.8%. The slower wage growth, coupled with the job losses, indicates that the labor market is struggling to generate new opportunities.
Despite the lack of a rise in the unemployment rate, it remains 1.4 percentage points higher than in January 2023. The data points to a labor market that is gradually loosening, potentially leading to a “soft landing” where the economy slows without triggering a sharp increase in unemployment.
Market Reactions and Policy Implications
Following the release of the jobs report, the yield on Canada’s two-year government bond initially spiked to 3.36% before settling back to 3.328% as of 8:40 a.m. in Ottawa. The Canadian dollar, also known as the loonie, continued its downward trend, trading at C$1.375 per US dollar.
The Canada Jobs losses are likely to keep the Bank of Canada on track to cut interest rates further. Governor Tiff Macklem and his team reduced the policy rate by 25 basis points in July. This marked the second consecutive meeting with a rate cut. Policymakers are concerned that continued deterioration in the job market could dampen consumer spending. This, in turn, could slow economic growth.
With this being the final jobs report before the Bank of Canada’s next rate decision on September 4, most economists are predicting further rate cuts at each of the remaining three meetings this year. These expectations align with current market pricing.
Impact of U.S. Economic Weakness
The recent weakness in the U.S. job market has also contributed to global economic jitters. Last week, weaker employment data in the U.S. led to a selloff in global equities. Investors are betting that the Federal Reserve may have to cut borrowing costs more aggressively. Given the close ties between the Canadian and U.S. economies, any additional weakness south of the border could trickle into Canada. This would allow Macklem to continue adjusting rates without moving too far ahead of the Fed.
Public Sector Job Gains Offset Private Sector Losses
Over the past year, the public sector has been the main driver of job growth in Canada, a trend that continued in July. Public employment grew by 40,800 positions, while the private sector saw a loss of 41,900 jobs. Full-time positions increased by 61,600, offsetting a decline in part-time jobs by 64,400. However, the youth unemployment rate rose sharply by 0.7 percentage points to 14.2%. This is the highest level since September 2012, outside of the pandemic. This suggests that younger workers are being disproportionately affected by the current labor market conditions.
Regional and Sectoral Impacts
Canada Jobs losses were concentrated in specific sectors, with retail and wholesale trade, along with the financial sector, bearing the brunt. Retail and wholesale trade shed 44,100 positions, while the financial sector lost 15,000 jobs. On the other hand, public administration hiring increased by 20,000 positions. Regionally, British Columbia led in job losses, while Ontario and Saskatchewan were the only provinces to report employment gains.
Outlook Remains Uncertain
While the July jobs report was softer than expected, it could have been worse, as noted by Benjamin Reitzes, Rates and Macro Strategist at Bank of Montreal. Despite the disappointing data, there’s little in the report to change the anticipated path for the Bank of Canada. The central bank remains focused on normalizing borrowing costs, but the latest figures underscore the fragility of Canada’s economic recovery.
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