Canada’s Job Losses Stir Rate Cut Expectations

What’s going on here?

Canada’s economy faced a bump in June, losing 1,400 full-time jobs and pushing the unemployment rate to 6.4%, up from 6.2% in May. Analysts had expected a gain of 22,500 jobs.

What does this mean?

June’s job losses and rising unemployment have sparked anticipation of potential rate cuts by the Bank of Canada (BoC). While not catastrophic, the steadily increasing unemployment rate marks a notable softening in the labor market over the past year. Despite this, wage growth for permanent workers remains high at 5.6%, a result of base effects from the previous year. However, this elevated wage growth is expected to decelerate in the coming months, suggesting that inflation will continue to moderate.

Why should I care?

For markets: Rates poised to drop.

Financial markets are now pricing in a strong likelihood of a rate cut from the BoC as early as this month. According to Corpay’s Chief Market Strategist, consecutive easing might be on the horizon, with the BoC’s survey data on the 15th being crucial. Additionally, any further signs of economic slack, such as a reduction in average hours worked, bolster the case for back-to-back rate cuts.

The bigger picture: A strategic shift.

Canada’s economy operating below trend, combined with slack in the labor market, eases concerns over accelerated wage growth. According to TD Securities, this environment supports ongoing easing by the BoC through 2024. The upcoming CPI report will be pivotal, as inflation trends could either solidify or challenge the current expectations of monetary policy adjustments.