Weaker-Than-Expected June Jobs Report Keeps BoC Rate Cuts In Play

This article is reposted from SherryCooper.com
Original Article Here

Canadian employment data, released today by Statistics Canada, showed a marked slowdown, which historically would have been a harbinger of recession. This cycle, immigration has augmented the growth of the labour force and consumer spending, forestalling a significant economic downturn. Nevertheless, the Bank of Canada will continue to cut interest rates by at least 175 basis points through next year. Whether they do so at their next meeting on July 24 will depend on the June inflation data released on July 16.

Canada shed 1,400 jobs last month, following a 26,700 increase in May. Economists had been expecting a stronger showing. Monthly job gains have averaged around 30,000 in the past year, while labour force growth has been more than 50,000, causing the jobless rate to rise. Full-time jobs declined marginally while part-time work edged upward. Job losses in June were led by decreases in transportation and warehousing, information and recreation, and wholesale and retail trade.

Regionally, jobs decreased in Quebec but rose in New Brunswick and Newfoundland and Labrador.

Population growth isn’t likely to slow shortly, meaning that anything short of about a 45k employment gain will increase the jobless rate. The jobless rate rose to 6.4%, up two ticks from a month earlier and 1.6 percentage points above the July 2022 cycle low. It is also the highest level since 2017 (excluding the pandemic). The rising unemployment rate aligned with the Bank of Canada’s rhetoric that higher interest rates damaged the labour market and strengthened the case for further rate cuts to support the economy.

Bottom Line

Traders in overnight swaps increased their bets that the Bank of Canada will cut borrowing costs again in July, putting the odds at around two-thirds, up from around 55% before the release.

In a speech last week, Macklem said it’s “not surprising” that wages are moderating more slowly than inflation because wages tend to lag the trend in job growth. He also said the unemployment rate could rise further, but a significant increase isn’t needed to get inflation back to the 2% target.


Dr. Sherry Cooper Chief Economist, Dominion Lending Centres

Dr. Cooper is Chief Economist of Dominion Lending Centres. Canada’s leading mortgage and leasing company with more than 3,700 members offering free expert advice across Canada. In this role, Sherry helps Canadians understand the issues surrounding their most important financial decision – buying a home.

Dr. Cooper has an M.A. and Ph.D. in Economics from the University of Pittsburgh. She began her career at the Federal Reserve Board in Washington, D.C. where she worked very closely with then-Chairman, Paul Volcker and subsequently joined the Federal National Mortgage Association (Fannie Mae) as Director of Financial Economics.

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