By Robb M. Stewart
OTTAWA–Canada’s jobless rate in July picked up for a third month running as hiring failed to keep pace with the country’s rapid population growth, a further sign the economy is losing momentum.
Loosening within Canada’s labor market after strong hiring early in the year comes as higher interest rates have risen sharply over more than year as the central bank has sought to dampen demand and cool inflation, though any comfort the policymakers find in the data may be tempered by an acceleration in wage growth last month.
The economy saw 6,400 jobs lost in July, the second modest decline in the last three months and after roughly 290,000 jobs were created in the first six months of 2023, Statistics Canada said Friday.
July’s retreat, which was well below the gain of 25,000 jobs economists were expecting, contributed to a 0.1 percentage point rise in the unemployment rate to 5.5%, the highest since January 2022 when it sat at 6.5%. It was the first time the country recorded three straight monthly increases in the jobless rate since the early months of the pandemic.
The unemployment rate has now risen 0.6 points from the record low of last summer, though it remains low by historical standards.
“July’s release contained many signs that the Canadian economy is slowing under the weight of sharply higher borrowing costs,” Desjardins principal economist Marc Desormeaux said.
He and other economists say the softening employment picture supports the view the Bank of Canada will hold its policy rate steady at the next meeting in September given the full impact of past rate increases has yet to be felt.
The economy has been relatively resilient in 2023, though growth is expected to be subdued going forward. The Bank of Canada last month boosted the policy rate one-quarter point to a fresh 22-year high of 5% as underlying inflationary pressures proved stubborn and consumer spending on services remained robust thanks to a mix of population growth, savings built up during the pandemic and pent-up demand. The central bank has forecast inflation will linger around 3%, a full point above its target, for the next year even as economic growth moderates to average about 1% through the first half of 2024.
When calculated using U.S. Labor Department methodology, Canada’s unemployment rate in July was 0.3 percentage point higher at 4.7%. The U.S. unemployment rate fell to 3.5% last month from 3.6% in June as hiring remained steady, with 187,000 jobs added in July, the Labor Department said Friday.
The shift in Canada’s jobs market comes against the backdrop of continued population growth, which rose in July by more than 80,000 for the fourth month in five. Over the first seven months of the year, the proportion of the working-age population that is employed has slipped a half percentage point, dipping to 62% in July, as it was outpaced by the rise in the population over the period driven by elevated immigration.
Friday’s jobs report showed that construction remains a weak point for the labor market, which led employment losses among four industries, while job gains were posted by four others, including health care and social assistance. Since the start of the year, jobs in construction have declined by 71,000, offsetting the cumulative gains between last September and January.
The labor-force participation rate–the proportion of the working-age population who were either employed or unemployed–inched down 0.1 point to 65.6% in July, while total hours worked were essentially unchanged for the month.
“The soft July employment report is just the latest arrow in the quiver of signs that the economy is losing momentum,” BMO Economics chief economist Douglas Porter said. “The case for the Bank of Canada moving to the sidelines is now very strong.”
Despite signs of job market softness, average hourly wage growth for July, a statistic the Bank of Canada has been watching for signs of inflationary pressures, picked up to 5.0% in July after easing to 4.2% the month before. Wages have been growing at 4% to 5% for about a year, despite weakness in productivity growth.
That reacceleration may lead the central bank to believe labor market conditions haven’t loosened enough to sustainably bring inflation back to target, said CIBC chief economist Andrew Grantham. He said that for now, he continues to forecast for one more interest rate increase, unless some good news on the inflation front in two weeks time is enough to prevent that.
Write to Robb M. Stewart robb.stewart@wsj.com
Read the full article here