Stalled Jobs Market Paves Way for Bank of Canada to Keep Cutting Interest Rates

The latest employment numbers from Statistics Canada have revealed a stagnant jobs market in July, with the unemployment rate remaining unchanged at 6.4%. This news has paved the way for the Bank of Canada to continue cutting interest rates, according to economists.

A Soft Monthly Reading

The economy shed approximately 2,800 jobs in July, which is considered a soft monthly reading. The biggest declines were observed in wholesale retail trade (-44,000 jobs) and finance, real estate, and insurance (-15,000 jobs). On the other hand, public administration (+20,000) and transportation and warehousing (+15,000) saw significant gains.

Youth Unemployment on the Rise

The unemployment rate among youth aged 15 to 24 rose to 14.2%, which is a significant increase from June’s 13.5%. This marks the highest level of youth joblessness since September 2012, excluding pandemic years. For returning students, the unemployment rate reached an alarming 17.2%, indicating a concerning trend.

Participation Rate at a Low

The participation rate fell to 65%, its lowest point since 1998, excluding the pandemic. Nathan Janzen, assistant chief economist at the Royal Bank of Canada, attributes this decline to Canadians dropping out of the labor market. "There was nothing in the July Canadian labour force data to say that the ongoing cooling in labour markets has run its course," he noted.

Private and Public Sector Employment

Employment gains have differed between the private sector and the public sector. The private sector saw a decline of 42,000 jobs in July, while employment in the public sector rose by 41,000. Over the past year, the private sector has added 86,000 jobs, outpaced by the 205,000 jobs added in the public sector.

Wage Growth Decelerates

Wage growth, one of the key contributors to inflation, decelerated slightly in July to 5.2%, down from June’s 5.4% year-over-year increase. This trend suggests that price pressures may start to ease, providing relief for consumers and businesses alike.

Bank of Canada’s Next Rate Decisions

Economists continue to predict four straight cuts by the end of this year and into 2025. According to Royce Mendes, economist at Desjardins, "The labour market is weak, but it’s not falling off a cliff — at least not yet." Central bankers need to get rates down ahead of the mortgage renewal wall in 2025, which would lead to higher borrowing costs for consumers and businesses.

Conclusion

Canada’s stagnant jobs market and decelerating wage growth have paved the way for the Bank of Canada to continue cutting interest rates. While the labor market is not falling off a cliff, it remains weak, and central bankers must take proactive measures to support economic growth.