Latest jobs data shows slowing market, rising unemployment
Canada’s labour market continued to cool in May, as revealed in Statistics Canada’s latest report, teeing up the likelihood of further interest rate cuts.
After the Bank of Canada decided to begin it’s reduction of rates last week - with the Fed’s decision this week potentially beginning a divergence of the two country’s policies – data continues to be the key to what might happen next.
Friday’s labour report showed that the Canadian employment was little changed last month, with 27,000 jobs representing a 0.1% increase, while the employment rate was down 0.1 percentage points to 61.3%.
The finance, insurance, real estate, rental and leasing sector was among the strongest for job growth (+29,000; +2.0%).
However, the stats show an increase in the share of people who were working part time in their main role, not from choice. More than 18% of people could not find a full time role or worked part time due to poor business conditions. This was up from 15.4% a year earlier.
Canada’s unemployment rate ticked higher by 0.1 percentage points to 6.2% in May and was up 0.9 percentage points year-over-year. Core age women saw a decline in employment for the first time since March 2022 and while youth employment was little changed, the employment rate of returning students was lower than the same month last year.
Average hourly wages among employees increased 5.1% (+$1.69 to $34.94) on a year-over-year basis in May, following growth of 4.7% in April (not seasonally adjusted).
Rate cuts?
Leading economists from Canada’s big banks have given their opinions on what the labour stats might mean for interest rates.
RBC Economics’ Nathan Janzen points to inflation and per-capita GDP figures as signs of the cooling economy but acknowledges that the BoC will be watching wage growth for inflation risk.
“The BoC won't regret cutting interest rates this week and with interest rates still at 'restrictive' levels, there is room to cut further without stoking a resurgence in price growth,” Janzen said.
At TD Economics, Leslie Preston says that recent data shows a slowing economy but not severely so. Expectation is for the BoC to cut rates at alternate meetings.
“We expect a further 50 basis points in reductions in the policy rate by the end of the year easing this year,” she said.
CIBC’s Katherine Judge thinks the central bank will cut again next month.
“The increase in the unemployment rate leaves it 1.5%-points above its 2022 low, and shows
that ample labour market slack has opened up. Moreover, the bounce in GDP in April appears have been a one-off, which will likely leave the BoC on track for a rate cut in July,” she wrote in her analysis.
At National Bank of Canada, Matthieu Arseneau and Alexandra Ducharme are also confident of further rate cuts, noting that the wages gains in the labour report belie the time lag reflecting economic conditions.
And with wage growth hitting corporate profits, “It is likely that some companies will have to make some tough choices and rationalize workforce in the coming months in order to restore profitability,” they said.
Meanwhile, Scotiabank’s Derek Holt says expectations of a July rate cut have not changed, adding that “all the pertinent data risk is still ahead, namely two rounds of CPI before the July 24th decision. Those reports will matter much more to BoC pricing than [the labour report].”
