The Canadian labour market continued to weaken in July as the economy lost 2,800 jobs and the unemployment rate was unchanged at 6.4 per cent, according to Statistics Canada.
Friday’s report supports the case that there is enough pain in the job market to restrict consumer spending and for the Bank of Canada to cut interest rates further.
The bank shifted its tone in July, when it cut the policy rate by 25 basis-points, to express greater concern about economic growth and inflation falling below their targets as a result of higher-for-longer interest rates.
Average hourly wages, however, slowed only slightly to 5.2 per cent, from 5.4 per cent in June, and are “still too hot for the Bank of Canada’s full comfort,” Douglas Porter, economist at BMO, wrote in a note to clients.
Overall, July’s jobs report came in weaker than what economists surveyed by the Star expected, who were forecasting a 15,000 to 30,000 gain in employment, but a one-percentage-point increase in the jobless rate to 6.5 per cent from 6.4 per cent in June.
“The pace of job gains just hasn’t been keeping up with growth in the labour force” driven by higher population, said Leslie Preston, an economist at TD Bank.
While the labour force grew 2.8 per cent over the past year, employment climbed 1.7 per cent, she added.
Notably, in July, the number of people in the labour force declined, which could explain the flat unemployment rate, economists say. Statistics Canada highlighted that a tougher market for younger workers might be leading some to stop looking for jobs altogether.
“At the same time, no one’s ringing alarm bells about Canada’s economy,” Preston said, adding that it’s been growing, albeit slowly.
So far, unemployment has climbed steadily to 6.4 per cent from 5.5 per cent a year ago.
In July, workers saw an increase in full-time work, which was offset by a decline in part-time work — a reversal of a trend observed over the past year, according to the Statistics Canada report.
The number of private sector employees declined by 42,000 while public sector employees rose by 41,000, led by jobs in health care and social assistance.
And younger workers and newcomers are still struggling to find work as companies freeze hiring.
The unemployment rate for those aged 15 to 24 was 14.2 per cent in July, the highest rate since September 2012 outside of the pandemic, while the unemployment rate for recent immigrant youth — those landed in Canada within the last five years — was a whopping 22.8 per cent in July.
The labour market seems to be sharply divided, noted Brendon Bernard, economist at Indeed, with youth employment rates below their 2017 to 2019 average, while both 25-to-54 and 55-to-64 year old employment rates are still above average.
Abbey Xu, economist at RBC, and Preston both see the total unemployment rate peaking at 6.7 per cent by the end of the year.
Prior to Friday’s release, money markets had priced in nearly a 100 per cent chance that the bank will cut its policy interest rate by 25 basis-points again in September. Economists interviewed by the Star agree.
Xu expects the economy to continue to cool, but not become a full-blown recession. She would have to see the labour market weaken “substantially” to change her prediction of future rate cuts.
Last week, softer jobs data coming from the U.S. was one of the factors that triggered recession-weary investors to engage in a widespread selloff that eroded billions in stock value on Monday. Many economists, however, have deemed it an overreaction, rather than a sign of an imminent recession.
