Data suggests softening economy, but the alarm bells aren't sounding yet
Canada’s jobs data was published at the end of last week, ahead of this week’s Bank of Canada interest rate decision. What do some of the country’s highest profile economists make of the stats?
Statistics Canada reported that the labour market was flat in March with a net loss of 2,200 jobs from the previous month, while the unemployment rate was up 0.3 percentage points month-over-month and 1 percentage point year-over-year to 6.1%.
Youth (ages 15-24) employment posted a 28,000 decline, while it was up 20,000 for core-aged men (ages 25-54) but was flat for core-aged women and all over 55s. A decline in self-employment played a key role in the overall decrease in employment with a 29K fall, but this followed a gain of 38K in the previous month.
The employment rate was down for the sixth consecutive month, but average wages continued higher in March, up 5.1% year-over-year to $34.81. Hours worked declined 0.3% month-over-month but were up 0.7% year-over-year.
Although the figures suggest softness in the economy, economists are not expecting the BoC to make any sudden moves.
Economists’ views
“The rise in the Canadian unemployment rate and pullback in hours worked in March are reasons to take substantially firmer looking GDP growth numbers in early 2024 with a large grain of salt,” said Nathan Janzen, assistant chief economist at RBC Economics. In his client note he highlighted the strong rise in immigration in March (91K) and rising labour supply.
Janzen doesn’t think the numbers would prompt an early or deeper cut in rates.
“A rising unemployment rate and further signs that inflation pressures are broadly consistent with our base-case assumption that the central bank will shift to cuts by mid-year,” he said.
At CIBC Capital Markets, Andrew Grantham also notes that impact of a rising population on the labour market and, with the expectation that second quarter GDP will weaken from the previous quarter, he and his colleagues “would expect to see further softening in the labour market with the unemployment rate peaking close to 6.5%. However, interest rate cuts starting in June should bring a reacceleration in growth, which will help to stabilise the labour market in the second half of the year and into 2025.”
Meanwhile, Derek Holt at Scotiabank calls for caution about alarmist headlines - we kept ours to the facts!
While acknowledging the weak points in the data, he pointed to the decline in self-employment and youth jobs contrasting with the positive of more core-aged employment. He also noted that the U.S. jobs data last week shows the continued strength of the economy south of the border, easing expectation that the Fed will be quick to cut with the BoC perhaps reticent to break ranks.
“I don't think this changes anything for the BoC. They look at trends, not single months,” he said. “They look at the broader picture and other parts of it are more important than March jobs, like the fact their GDP forecast is being blown out of the water, the terms of trade is rising, and that fiscal contributions to future growth have to be raised.”
