July Job Losses in Canada

By Promit Mukherjee and Ismail Shakil
OTTAWA (Reuters) – Canada’s economy shed a net 2,800 jobs in July, as gains in full-time work were offset by part-time job losses, while the unemployment rate remained at a 30-month high of 6.4%, data showed on Friday.

Analysts polled by Reuters had forecast a net gain of 22,500 jobs and expected the unemployment rate to rise to 6.5% from 6.4% in June. An increase in the unemployment rate was anticipated due to rapid population growth, which the labor market could not absorb.

The numbers followed a jump in the U.S. unemployment rate last week, where a three-year high jobless rate caused market turmoil and raised recession fears. Financial markets have predicted an almost 50 basis point cut in U.S. interest rates, while stocks and bond yields fell.

In Canada, money markets have priced in another 25 basis point cut at the Bank of Canada’s next rate announcement on Sept. 4, anticipating almost three cuts by the year’s end. Economists viewed the jobs report as having a minimal impact on the trajectory of rate cuts in Canada, indicating a weakening economy.

Kyle Chapman, FX Markets Analyst at Ballinger Group, stated, “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 (in) cutting rates.”

The BoC, after announcing a second consecutive cut in its benchmark rate last month, noted that economic growth had lagged behind population growth, resulting in excess supply in the economy and slack in the labor market.

The unemployment rate, at its highest since 6.5% in January 2022, has risen 0.7 percentage points since January. The participation rate of Canada’s labor force also declined to a 26-year low of 65% in July, excluding the pandemic year, largely due to a segment of the population not seeking employment.

Statscan reported, “A more difficult labor market for young people may lead some to stop or pause their job search.”

The Canadian dollar slightly dropped to be down 0.12% at 1.3744 against the U.S. dollar, or 72.76 U.S. cents. Yields on Canadian government two-year bonds decreased by 2.5 basis points to 3.451%.

Average hourly wage growth for permanent employees slowed to an annual rate of 5.2% from 5.6% in June, as reported by Statistics Canada. This pay growth rate is closely monitored by the Bank of Canada due to its impact on inflation.

Employment in goods-producing sectors increased by a net 12,000 jobs, led by construction and utilities, while the services sector lost a net 14,800 jobs, mostly in wholesale and retail trade, as well as in finance-related jobs.