Canadian Employment Takes a Hit
Canadian employment fell by 41,000 in July, reversing nearly half of June’s gains. The unemployment rate held at 6.9%, just shy of the near-decade high economists had forecast. This unexpected drop has raised concerns about the state of the economy.
Who Was Affected the Most?
The drop was concentrated in full-time positions, with 51,000 jobs lost, while part-time work also slipped by 39,000. Youth were hit the hardest, with 34,000 jobs lost in July, and the unemployment rate for 15- to 24-year-olds climbing to 14.6%, the highest since 2010 outside of the pandemic.
Expert Analysis
BMO chief economist Douglas Porter called it “an unambiguously weak report,” but said it follows “an unambiguously strong” one in June. He noted that the overall picture is a soft economy, running with some excess capacity, not surprising in light of the trade uncertainty. TD’s Leslie Preston added that the steady unemployment rate was due largely to declining labour force participation—“not a very positive sign.”
Impact on the Bank of Canada’s Decision
Despite the surprise job losses, economists say the figures aren’t enough to shift the Bank of Canada’s thinking ahead of its next policy announcement on Sept. 17. Michael Davenport, senior economist at Oxford Economics, said the timing and context make it unlikely the latest jobs figures will sway the Bank of Canada. The central bank will likely keep its policy rate at 2.75%, citing “still elevated trade policy uncertainty, duelling forces on inflation and growth from the trade war, and major fiscal stimulus in the pipeline.”
Inflation and Future Rate Cuts
Porter said the weakness could add “downward pressure on inflation” and improve the case for a cut later this fall, but “the Bank…will still need to see inflation slow notably over the next two prints for a September cut to be a high likelihood.” Preston shared a similar view, saying, “Today’s jobs report likely won’t move the needle much on the Bank’s thinking on the economy relative to its recent monetary policy report. We think a strong argument for further rate cuts remains in Canada, we’ll see if the BoC agrees.”
Market Reaction
Bond markets reacted modestly, with Canada’s 5-year yield down roughly two basis points to 2.92%. This reaction suggests that the market is not overly concerned about the job losses and is waiting to see how the Bank of Canada will respond.
Conclusion
In conclusion, the Canadian employment market has taken a hit, with 41,000 jobs lost in July. While this is a concern, economists do not think it will significantly impact the Bank of Canada’s decision on interest rates. The focus will now shift to inflation and how it will affect the Bank’s decision in September. As the economy continues to evolve, it will be important to monitor the job market and inflation to get a sense of where the economy is headed.
