Canada’s job market took an unexpected hit in July, losing a net 2,800 jobs as gains in full-time employment couldn’t offset part-time losses.
Despite these setbacks, the unemployment rate remained steady at 6.4%, the highest it’s been in 30 months.
Analysts had anticipated a gain of 22,500 jobs and a slight uptick in the unemployment rate to 6.5%, largely due to the country’s rapidly growing population outpacing the labor market’s ability to keep up.
This dip in employment follows a sharp rise in the U.S. unemployment rate, which rattled markets and stirred recession fears.
South of the border, investors quickly priced in nearly a 50 basis point cut to U.S. interest rates, triggering a sell-off in stocks and a drop in bond yields.
Back in Canada, the outlook was a bit more tempered. Money markets have already factored in a potential 25 basis point cut by the Bank of Canada (BoC) in its upcoming September 4 announcement, with almost three more cuts expected by year’s end.
Economists, however, see the latest jobs report as having little impact on the BoC’s trajectory.
Kyle Chapman, an FX Markets Analyst at Ballinger Group, remarked, “This report is broadly neutral in my eyes and changes little for the path of rates… the Canadian economy is weak, inflation is on track, and the Bank of Canada needs to get a move on with cutting rates.”
The BoC had already slashed its benchmark rate last month for the second time in a row, citing slower economic growth compared to population expansion.
This mismatch has created slack in the business economy and a softening labor market, pushing the unemployment rate to its highest point since January 2022.
Additionally, the labor force participation rate dipped to a 26-year low of 65%, excluding the pandemic years, as more Canadians, particularly younger workers, paused or abandoned their job searches.
On the currency front, the Canadian dollar slid further, down 0.12% to 1.3744 against the U.S. dollar, or 72.76 U.S. cents. Meanwhile, yields on Canada’s two-year government bonds dipped by 2.5 basis points to 3.451%.
The data also revealed a slowdown in wage growth, with the average hourly wage for permanent employees rising by 5.2% annually, down from 5.6% in June. This figure is closely monitored by the BoC for its influence on inflation.
In sector-specific news, the goods-producing industries saw a net gain of 12,000 jobs, driven by construction and utilities.
However, the services sector shed 14,800 jobs, with significant losses in wholesale and retail trade, along with some finance-related positions.
As Canada’s economy continues to face headwinds, the path forward appears fraught with challenges, leaving the BoC with the difficult task of balancing rate cuts with economic stability.
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