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.
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, economist at TD.
While the labour force grew 2.8 per cent over the past year, employment climbed 1.7 per cent.
“But at the same time, no one’s ringing alarm bells about Canada’s economy,” she said, adding that she expects the central bank to cut its key policy rate by another 25 basis-points at its next meeting September 4.
So far, unemployment has climbed steadily from 5.5 per cent a year ago, and has been flat at 6.4 per cent since June.
Abbey Xu, economist at RBC, and Preston both see the 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 100 per cent chance that the bank will cut the 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 enter into a full-blown recession. She would have to see the labour market weaken “substantially” to change her outlook for 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.
