The Canadian labor market unexpectedly lost jobs for the second time in four months, keeping the central bank on track to further cut rates this year.
The country shed 1,400 jobs in June, while the unemployment rate rose 0.2 percentage points to 6.4%, Statistics Canada reported Friday in Ottawa. Economists had expected the job market to look stronger, with a gain of 25,000 positions and a jobless rate of 6.3%, according to the median estimates in a Bloomberg survey.
The numbers point to further loosening of the labor market, which should help gradually cool wages that remain stubbornly high — wage growth for permanent employees accelerated to 5.6% in June, beating expectations. Despite elevated compensation increases, the softer labor market makes conditions more favorable for the Bank of Canada to reduce its policy rate again in the coming months.
The data were released at the same time as US payrolls, which showed hiring moderated in June and prior months were revised lower, boosting the odds that the Federal Reserve will begin to cut interest rates in the coming months. Fluctuations in the loonie are often driven by the difference between US and Canadian interest rates, owing to the two countries’ tight economic links.
The Canadian dollar fell slightly against the US dollar, trading at C$1.3620 as of 9:15 a.m. Ottawa time. The loonie fell more sharply against other currencies, posting the worst performance in the Group of 10. Canadian government bonds rallied in tandem with their US counterparts — the 2-year yield fell about seven basis points on the day.
Traders in overnight swaps increased their bets the Bank of Canada will cut borrowing costs again in July, putting the odds around two-thirds, from around 55% before the release.
Governor Tiff Macklem and his officials lowered their key policy rate by 25 basis points to 4.75% last month. After seeing several months of cooling price pressures, officials said they were more confident inflation was headed to the 2% target and that monetary policy no longer needed to be as restrictive, but noted that the pace of easing would be gradual.
This is the last of two jobs reports before the next rate decision on July 24, when policymakers will also provide fresh economic forecasts. The majority of economists in a Bloomberg survey expect policymakers to hold rates steady at that meeting before easing again on Sept. 4.
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 large increase isn’t needed to get inflation back to the 2% target.
“This report drives home the point that the Canadian labour market can simply no longer be considered tight — in fact, it is quickly tipping in the other direction,” Douglas Porter, chief economist at Bank of Montreal, wrote in a report to investors.
Most of the acceleration in wage growth is due to a base effect, not stronger momentum, Charles St-Arnaud, chief economist at Alberta Central, said in an email.
“With the amount of slack in the economy increasing and inflation in line with the Bank of Canada’s target, we think another cut in July is warranted,” he said, though he added the next inflation print on July 16 is crucial.
The labor report raises the chance that the central bank will cut interest rates again this month, agreed Olivia Cross of Capital Economics in a report to investors, adding that her team is “more confident in our view that the bank will cut at each remaining meeting this year.”
Total hours worked fell 0.4% in June, and rose 1.1% from a year ago, a sign that the economy may grow by less than expected in the second quarter.
The participation rate decreased by 0.1 percentage points to 65.3%. The employment rate — the proportion of the working-age population that’s employed — dropped by 0.2 percentage points to 61.1%, the eight decrease in the past nine months.
The unemployment rate for youth rose 0.9 percentage points to 13.5%, the highest rate since September 2014 outside of the pandemic.
Job losses in June were led by decreases in transportation and warehousing, information and recreation as well as wholesale and retail trade.
Over the past year, employment growth was faster in the public sector than in the private sector, which grew 4.3% and 0.8%, respectively.
Regionally, employment fell in Quebec, the country’s second most populous province, which lost 18,000 jobs in June. Ontario, the biggest province, posted little change in employment but the jobless rate rose 0.3% percentage points to 7% as more people are searching for work.
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