Data will give Bank of Canada plenty of ammunition to keep cutting interest rates
Canada’s unemployment rate rose 0.2 percentage points to 6.6 per cent in August as the economy was unable to generate enough jobs to keep up with the increase in the population, according to Statistics Canada data released on Friday.
Analysts had expected the jobless rate to rise to 6.5 per cent from 6.4 per cent in July.
Here’s what economists think the data means for the Bank of Canada and interest rates.
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“This is a sure-fire recession indicator,” David Rosenberg, founder and president of Rosenberg Research & Associates Inc., said in a note.
Rosenberg called the August data “unimpressive and uninspiring,” noting the unemployment rate has risen 1.8 percentage points from its cycle low of 4.8 per cent in July 2022.
“Slack is building up fast in the Canadian economy, and there is nothing in the labour market to suggest the BoC can take its foot off the gas by even an inch in terms of the easing cycle,” he said.
Economist Michael Davenport at Oxford Economics Group Ltd. expects the unemployment rate will rise “well above” seven per cent by the end of 2024 as the economy fails to produce enough jobs to keep pace with growth in the number of working-age people.
“Although the economy added a small number of jobs in August, the underlying trend in the labour market is clearly one of rising unemployment and weaker hiring,” he said in a note.
“Weak” details in the latest data included a drop in hours worked — down 0.1 per cent — and a decrease in full-time employment, while “the unemployment rate for youth continued to trend concerningly higher, and the employment rate fell for the 10th time in the past 11 months.”
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Davenport expects the Bank of Canada to continue cutting by increments of 25 basis points at its upcoming meetings, including the remaining two this year.
“The data in (the) August labour survey paint a consistent picture of a cooling job market,” Tu Nguyen, an economist at tax consultancy RSM Canada LLP, said in a note, pointing to a lack of hiring and employment increases in sectors such as health care, education and social services that are “less sensitive to the macroeconomic environment.”
Nguyen also highlighted the five per cent increase in wage growth, an area of concern that the Bank of Canada mentioned on Wednesday when it cut interest rates by 25 basis points to 4.25 per cent.
Wage growth in August slowed from July, when it increased 5.2 per cent year over year, and the 5.4 per cent recorded in June.
Nguyen expects wage growth will likely continue falling as population growth outpaces the number of available positions.
“This job market report suggests more rate cuts will come,” she said.
Canada’s rate of layoffs is up more than 20 per cent from a year ago as the jobs market continues to weaken, Nathan Janzen, an economist at Royal Bank of Canada, said in a note.
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“Much of the unemployment rate increases to date have come from longer job searches for new labour market entrants (particularly students), but layoffs are also rising under the surface,” he said.
A slide in the number of job openings hint at slackening hiring demand.
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Janzen thinks the jobs report will confirm that inflation is continuing to decelerate, given the rising jobless rate and slumping gross domestic product per capita.
“We continue to expect the BoC to cut the overnight rate for a fourth consecutive decision point next month,” he said, “from what are still elevated levels.”
• Email: gmvsuhanic@postmedia.com
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