Loonie Surges After Canada Job Gains Blow Past Expectations

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(Bloomberg) — Canada’s job gains beat expectations but hiring failed to keep up with a rising population and wage growth cooled, keeping the door open for the central bank to cut rates as early as next month.

The country added 90,000 jobs in April, driven by part-time positions, while the unemployment rate held steady at 6.1%, Statistics Canada reported Friday in Ottawa. The figures beat expectations for a gain of 20,000 positions and a jobless rate of 6.2%, according to the median estimate in a Bloomberg survey of economists.

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The loonie jumped against the greenback, though it later pared some of those gains, while the yield on the benchmark Canada two-year bond rose, up about eight basis points on the day at 4.286% as of 11:15 a.m Ottawa time. Traders pared odds of a June cut back to a coin toss, from two-thirds prior to the release.

But against the backdrop of rapid immigration-fueled population growth, job creation during the month fell short of 112,000 new working-age entrants — that’s been a persistent trend over the past year.

Compensation is also rising at the weakest pace in 10 months. Wage growth for permanent employees decelerated to 4.8%, down from 5% a month earlier.

Overall, despite an unexpectedly strong rebound from March job losses, the broader trend still shows signs of a softening labor market that the Bank of Canada views as favorable in easing wage growth and underlying inflation. That leaves policymakers focusing on the upcoming April inflation report, due May 21, as they mull a pivot to easier policy.

The jobs data is unlikely to sway the central bank into a pause, Charles St-Arnaud, chief economist at the Alberta Central association of credit unions, said in an email.

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“The BoC remain focused mostly on inflation. The breadth of inflation is gradually easing and returning to the historical average, while core inflation is returning below 3%,” he said. “With this in mind, we believe the BoC will cut at the June meeting, unless we get a positive surprise when inflation is released.”

Read More: Bank of Canada Sees Gradual Pace of Rate Cuts to Balance Risks

Friday’s data was better than expected but it’s important to look at the broader trend, Andrew Grantham, an economist at Canadian Imperial Bank of Commerce, said in a report to investors.

“The underlying trend remains one of loosening conditions with the unemployment rate still higher than it was at the start of the year and wage pressures beginning to ease,” he said.

Royce Mendes, managing director of macro strategy for Desjardins Securities, said in a report to investors that while the headline number will garner most of the attention, “the details of this report suggest that the labor market is actually exhibiting some evidence of slack.”

However, Stephen Brown of Capital Economics said the surge in employment in April shows that job losses in March were just a blip. “The Bank of Canada is now more likely to wait until the July meeting to cut interest rates, rather than moving in June as we expected,” he said. 

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The data on Friday comes from Statistics Canada’s labor force survey, which polls about 56,000 households monthly. It has shown far stronger job growth than the payroll survey, which is a census of all paid workers in Canada and based on submissions by businesses for tax purposes. In the labor force survey, the two top industries for job gains — professional, scientific, and technical services, as well as food and accommodation — have been highly volatile in recent months.

Read More: Payrolls Expose Deeper Cracks in Canada’s Job Market

This is the only jobs report before the Bank of Canada’s next rate decision on June 5. The majority of economists in a Bloomberg survey expect Governor Tiff Macklem and his officials to cut policy rate by 25 basis points to 4.75% at that meeting, marking the start of an easing cycle.

During their April deliberations, which resulted in the bank holding borrowing costs steady for a sixth straight meeting, policymakers assessed the March report as “consistent” with the recent trend: job gains continued to be lower than working-age population growth and wage increases had begun to show signs of easing.

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What Bloomberg Economics Says…

“Odds are increasing that we will need to change our base case for a rate cut in July. Policymakers remain on watch for signs that underlying inflation pressures are abating, and are seeing some with slowing growth and downside surprises in inflation. The labor market is coming into better balance, but with the pace of hiring so volatile, cautious policymakers may need to delay the start of rate cuts to September or later.”

— Stuart Paul, US and Canada economist

Read the full report here.

Total hours worked in April rose 0.8% on the month and were up 1.2% from a year ago.

The participation rate rose 0.1 percentage points to 65.4 in April, the first increase since June 2023.

The employment rate — the proportion of the working-age population that’s employed — held steady at 61.4%, following six straight monthly declines. But on a year-over-year basis, the rate was down 0.9 percentage points as working-age population gains of 1.1 million outpaced 377,000 jobs created.

Job gains were led by increases in professional and technical sectors, accommodation and food services and health care and social assistance. Construction, agriculture, utilities and educational services shed jobs.

Regionally, employment rose in Ontario, British Columbia, Quebec and New Brunswick, and was little changed in other provinces.

Adjusted to US concepts, the unemployment rate in Canada is 5.1%, compared with 3.9% in the US. The rate rose a full percentage point in Canada over the past year, versus 0.5 in its southern neighbor.

—With assistance from Jay Zhao-Murray and Erik Hertzberg.

(Updates market line.)

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