Steady employment levels in July mask “some warning signs” about the health of the Canadian labour market, with most economists expecting the latest figures will open the door for more interest rate cuts to come from the Bank of Canada.
Staistics Canada reported Friday that the national unemployment rate held firm at 6.4 per cent in July as total employment was “little changed” last month. Some 2,800 jobs were lost in July, the agency said.
That marks the second consecutive month of job losses for Canada after net 1,400 positions were lost in June. But overall, employment is still higher by around 346,000 positions year-over-year.
“This was actually one of the most mixed labour market reports we’ve had in a while,” says Stephen Brown, deputy chief North America economist at Capital Economics.
The July jobs report was a story of trade-offs: where private industry shed 42,000 positions, the public sector added 41,000 new hires; where the full-time employment surged by 62,000 jobs, part-time work fell by 64,000 roles.
The wholesale and retail trade industry led job losses last month, shedding 44,000 positions, followed by the finance, insurance and real estate sector, down 15,000 positions. Offsetting those losses were new hires in public administration, transportation and warehousing and utilities sector.
Women and men aged 55-64 both saw a drop in employment, shedding 41,000 and 15,000 jobs, respectively. Young men aged 15-24 also faced job losses in the month (down 20,000 positions), while core aged men between 25 and 54 years old saw a jump (up 48,000 positions).
Employers have slowed their hiring paces as Canada’s economy cools, with the unemployment rate rising largely due to strong population growth rather than widespread layoffs.
Despite a rising population in the month, Canada’s labour force participation rate —the proportion of those aged 15 and older working or looking for work — declined 0.3 percentage points to 65 per cent in July. This marks the lowest participation rate since June 1998, excluding the pandemic years.
Young men and women in particular were driving down the participation rate as returning students and new graduates continue to face high levels of unemployment in a slowing jobs market. StatCan noted that the “more difficult labour market for young people may lead some to stop or pause their job search.”
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But Brown notes that the participation rate declined among core aged adults as well. There are “some warning signs there” as Canadians could be getting discouraged in a tougher labour market, he says, adding that some details of the July report are “a bit concerning” for job seekers.
“Even though we didn’t see that rise in the unemployment rate, you could still argue in the background labour market conditions were loosening further,” he says.
On the other hand, the concentration of gains in the core-aged population and full-time work drove the total hours worked 1.9 per cent higher year-over-year in July. Brown says that bodes well for economic recovery heading into the third quarter of the year.
Bank of Canada clear for more cuts, economists say
Two interest rate cuts into an easing cycle, the Bank of Canada says it’s watching for signs of slowing wage growth as it looks for confidence inflation is heading back to two per cent.
Average hourly wages were up 5.2 per cent year-over-year in July, easing from a rate of 5.4 per cent in June.
Brown says it’s “discouraging” to see wage growth holding above five per cent, which he says is inconsistent with achieving the central bank’s two per cent inflation target.
Until recently, economists had expected the Bank of Canada might pause its interest rate cut cycle at one of its upcoming meetings, but Brown says the narrative has changed lately as the central bank’s focus shifts to fears that the annual inflation might fall too far below two per cent and the economy may need less restrictive monetary policy.
The Bank of Canada noted concerns about the health of the labour market in the minutes of its latest interest rate decision. Signs of slack emerging in the jobs market could delay a rebound in the economy that the central bank has been forecasting to begin in the second half of this year, the deliberations noted.
BMO chief economist Doug Porter said in a note to clients on Friday that the July jobs report is a bit of a “non-event” for the Bank of Canada, where signs of weakness in one pocket of the labour force are largely offset by growth elsewhere. But the latest run of jobs data suggests that employment is not growing, setting the central bank up to continue along its easing path, he said.
“This backdrop doesn’t increase the urgency of rate cuts, but it also does nothing to dissuade them,” Porter said. He added that BMO’s revised call looking for 25-basis-point interest rate cuts at each of the next four Bank of Canada decisions is looking good after the latest jobs numbers.
CIBC and TD Bank are also calling for interest rate cuts at each of the remaining meetings this year, bringing the central bank’s benchmark interest rate down to 3.75 per cent heading into 2025. That mirrors the latest bets in money markets as of Friday, according to Reuters.
Brown says the upcoming Sept. 4 rate decision has so far been a question of not whether the Bank of Canada will cut again, but by how much. He says that July’s jobs report has enough causes for concern, particularly around wage growth, that a 50-basis-point rate cut is not likely.
“For now, we’re still we’re still landing firmly in that … quarter-of-a-percentage-point rate cut camp,” Brown says.
But he adds that upcoming inflation data for last month set for Aug. 20 will have more of a say on the central bank’s upcoming decision.
The numbers came after a jump last week in the unemployment rate in the U.S., Canada’s biggest trading partner, where a three-year high jobless rate roiled markets and stoked fears of recession.
Financial markets penciled in an almost 50 basis point cut in U.S. interest rates and stocks tumbled along with bond yields earlier this week.
— with files from Reuters