Job Growth Stalls in Canada; Unemployment Rate Holds at 6.4%

(Bloomberg) — Canada unexpectedly shed jobs for a second straight month and the unemployment rate held at the highest level in more than two years, keeping the Bank of Canada on track to further cut interest rates.

The country lost 2,800 positions in July, while the unemployment rate was unchanged at 6.4%, Statistics Canada reported Friday in Ottawa. Economists in a Bloomberg survey had expected the economy to add 25,000 positions and the jobless rate to rise to 6.5%.

Wage growth for permanent employees decelerated to 5.2% from 5.6% a month earlier, though it remained faster than expectations of 4.8%.

Combined, the data point to an economy that’s struggling to churn out jobs, and while the unemployment rate didn’t rise as expected, it’s still 1.4 percentage points higher than in January of last year. The report adds to evidence that Canada’s job market is on track to loosen gradually, suggesting a soft landing without a sharp spike in unemployment.

Following the release of the data, the Canada two-year government bond yield initially spiked to 3.36% before quickly paring back to 3.328% as of 8:40 a.m. Ottawa time. The loonie held to losses after the report, trading at C$1.375 per US dollar.

Policymakers led by Governor Tiff Macklem reduced the policy rate by 25 basis points for a second straight meeting in July. During their deliberations last month, some officials said they’re worried that a further deterioration in the job market may delay a recovery in consumer spending and put downward pressure on growth.

This is the only jobs report before the next Bank of Canada rate decision on Sept. 4. Most economists expect cuts at each of the remaining three meetings this year, which aligns with market pricing. 

Last week, weaker employment data in the US contributed to a selloff in global equities as bonds rallied amid increased bets the Federal Reserve will be forced to cut borrowing costs more deeply and quickly than was previously expected.

The two countries’ economies are deeply intertwined, and more weakness in the US is likely to trickle through to Canada. That also allows Macklem to keep normalizing borrowing costs without worrying about moving too far ahead of the Fed and risking consequences for the loonie.

The public sector has accounted for most of Canada’s job gains over the last year, a trend that continued in July. That month, public employment grew by 40,800 positions while the private sector shed 41,900 jobs.

Full-time positions rose by 61,600 while part-time jobs fell by 64,400.

The report shows the labor market remains weak, said Charles St-Arnaud, chief economist at Alberta Central, in an email.

“While the strong increase in full-time jobs is a positive by pushing hours worked higher, most of the job creation looks to be once again in the public sector,” he said. “In addition, the details shows the labor market deteriorated more for the younger cohorts.”

The youth unemployment rate surged in July, rising 0.7 percentage points to 14.2%, the highest level since September 2012 outside the pandemic.

Total hours worked rose 1.9% from a year ago and were up 1% on the month.

“All told, this is a soft report, but could have been worse, as full-time jobs and hours worked rose,” Benjamin Reitzes, rates and macro strategist at Bank of Montreal, said in an email. 

“Nonetheless, there’s nothing here to change the expected path for the Bank of Canada.”

The participation rate fell to 65%, the lowest since 1998 outside the pandemic.

In recent months, strong immigration has typically translated to large gains in the size of the labor force. July’s data bucked the trend — the labor force shrunk by 11,300, the first decline since September 2022, despite growth in the working-age population of 125,400.

What Bloomberg Economics Says…

“July’s surprise decline in total employment will add to the Bank of Canada’s conviction that further rate cuts are appropriate this year. The unemployment rate held steady because of a decline in labor-force participation — something we think will prove temporary.”

— Stuart Paul, US and Canada economist

Read the full report here. 

The employment rate — the proportion of the working-age population that’s employed — fell 0.2 percentage points to 60.9%.

Job losses were led by decreases by retail and wholesale trade, as well as the financial sector, which shed 44,100 and 15,000 positions respectively. Public administration hiring rose by 20,000.

Regionally, British Columbia led job losses, and Ontario and Saskatchewan were the only provinces to add to employment.

–With assistance from Jay Zhao-Murray and Anya Andrianova.

(Adds more details, economist reaction.)

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