While July’s employment report was weaker than expected, economists say the Bank of Canada will continue to watch for signs of slowing inflation and economic growth prior to its September rate decision.
Statistics Canada reported today that the country lost 6,000 positions, comprised of a decline of 8,100 part-time positions and a gain of 1,700 full-time positions. Economists had been expecting a balance of 21,000 new positions for the month.
Consequently, the unemployment rate rose to 5.5% from June’s 5.4%. This marks its highest level since January 2022.
“July’s release contained many signs that the Canadian economy is slowing under the weight of sharply higher borrowing costs,” noted Marc Desormeaux, principal economist at Desjardins.
He pointed out that the construction sector, normally one of the most sensitive to interest rate hikes, has fallen in four out of the past six months.
“This should give the Bank of Canada reassurance that its tightening continues to work as expected,” he added.
July employment details
The most significant job losses were reported in the construction sector, which saw a loss of 44,700 positions during the month. Public administration (-16.7k) and information and culture (-15.8k) also contributed to the overall decline.
However, the healthcare sector continued to show promise, gaining 25.1k jobs, along with the education sector, which saw an increase of 18.8k positions. Additionally, the finance, insurance, and real estate industry experienced growth, adding 15,000 jobs.
After easing in June, wage inflation once again picked up in July with average hourly earnings rising by 5% year-over-year. That’s up from 3.9% in June.
Bank of Canada not likely to drop its hawkish tone just yet
Despite July’s weaker-than-expected employment figures, economists say the Bank of Canada will want to see further indications that inflation and economist growth are trending down before it commits to moving back to the sidelines on monetary policy.
“The jobs report is one of a slew of indicators in advance of the BoC ’s next interest rate decision on September 6th and the question remains whether interest rates are sufficiently restrictive to tame inflation, noted RBC Economics’ Carrie Freestone.
“Today’s jobs report is a point in favour of keeping the overnight rate at 5%, but the BoC will closely monitor additional indicators—particularly upcoming inflation and consumer spending reports—to determine whether an additional hike is needed,” she added.
TD Economics’ James Orlando agreed. However, while he says the odds of an additional Bank of Canada rate hike have dropped following today’s report, he notes the Bank “isn’t likely to change its hawkish tone just yet.”
“The BoC will need to see more of the same before it can feel like its job is done,” he wrote.
He added that the unemployment rate should continue to rise as we see a “further slowing in economic momentum through the rest of this year.”