The Canadian jobs reading for July caught economists by surprise with a loss of 30,600 jobs instead of an expected gain of 15,000 for the month.
Despite the negative reading that came on the heels of a larger drop in June, the unemployment rate held steady to a historic low of 4.9 percent based on a drop in the Canadian participation rate, according to Statistics Canada.
“The Canadian labor market is not in a mess,” National Bank economists Kyle Dahams and Alexandra Ducharme said in their comments, noting that the private sector has so far added 110,000 jobs. The pair said they continue to see “resilient in the Canadian economy” which makes them a fringe among other major bank analysts.
After absorbing the July numbers, most economists seem to have taken two narratives:
The Bank of Canada will not be discouraged from raising interest rates further, and perhaps with another larger-than-normal hike.
The July jobs reading indicates that the economy is starting to “lose steam”.
Here are the economists in their own words:
Rishi Sundi, TD Economics
“That’s two in a row in terms of weak key job prints, and employment has now averaged a decline of 11,000 over the past three months. This is consistent with our view that economic growth will slow in the second half of the year. Details skewed to the softer end of the year. July, in which full-time employment accounted for a larger share of the total job decline compared to June, and hours worked as well.The latter is particularly notable as it may indicate a weak monthly GDP reading, following flat growth in May and sub-trend gains in June ( Based on Statcan’s initial estimate).
Stephen Brown, Capital Economics
“The second consecutive monthly drop in employment will raise some eyebrows at the Bank of Canada, but with the unemployment rate unchanged at a record low and wage growth still strong, we suspect it will prevent the Bank from raising its policy rate by more than 100 basis points in the next two meetings…. While the increase in average hourly earnings was slightly lower than we expected, at 0.4% m/m, this gain is still too high for comfort in terms of meeting the bank’s 2% CPI inflation target on the margins, it may The LFS for July tilts the odds slightly towards a 50bp rate hike in September instead of the 75bp rate hike, but we doubt that will be the deciding factor.”
Andrew Grantham, CIBC Economics
Canadian employment numbers were somewhat perplexing again in July, with employment declining for the second month in a row but the unemployment rate remaining historically low. The decline in jobs of 31K came against consensus expectations of a gain of 15K, and added to the decline of 43K in the previous month. However, a two-point drop in the participation rate kept the unemployment rate at 4.9%. Job losses were strangely concentrated in the services sector, including wholesale and retail, education and health. With high vacancy rates in some of these sectors, it appears that labor supply rather than demand is the main issue. However, the main difference between today’s report and last month’s report is that wage growth slowed unexpectedly (to 5.4% yoy from 5.6% vs consensus forecast of 5.9%) even though we always warn that the LFS wage series is very volatile per month / month. While today’s numbers muddy the waters more for policy makers, the Bank of Canada will likely focus on the historically low unemployment rate and strong wage growth to justify another non-record rate hike at its next meeting.”
Carrie Friston, RBC Economics
In the coming months we will start to see the economy lose steam. We are already noticing rising unemployment claims south of the border, as the demand for labor in the United States is beginning to decline. Canada will not be far behind. With the Bank of Canada raising its overnight interest rate by 225 basis points (to 2.5%) since March, and at least another 75 basis points set to fall, inflation pressures will ease. Labor markets are expected to calm down. Our forecast calls for the unemployment rate to begin to trend upward in the coming months and into 2023.”
Douglas Porter, BMO Economics
It is clear that the Canadian labor market is rapidly losing momentum, likely due both to the cooling observed in the broader economy but also due to the lack of available labour. The downward drift in the participation rate, especially for the 15-64 group, deserves to be watched closely, with the labor market potentially tightening further. For the Bank of Canada, the upshot will be that while growth is clearly cooling, conditions remain tight and wages are moving. We believe this background is consistent with another rate hike at the September meeting, but it is less aggressive in nature than the massive 100bp move in July. We are looking for a 50 basis point rise at that time.”
Marc Desormo, Desjardins Economics
“July’s data was well below consensus expectations, thus reducing our call for real Canadian GDP growth for the third quarter of 2022 to just under 1% (quarterly). Slowing wage gains suggests that some progress has been made in combating inflation, But hourly earnings growth continues to closely track rates.Accordingly, while we believe inflation has peaked and previously noted that the Canadian economy is historically sensitive to rate increases, we believe the Bank of Canada will put more weight on a very tight labor market and raise rates by 50 basis point in September. Meeting.”
Kyle Dahams / Alexandra Ducharme, National Bank Economics
Canada lost 31,000 jobs in July, the second consecutive monthly decline. Despite this development, the Canadian labor market is not in a state of disarray. July’s losses were concentrated in public sector jobs. The sector has already suffered its worst loss outside the pandemic since 1976 (-51K), a puzzling development given the state of public finances at the federal and regional levels. While employment in the private sector also declined in July, it is still up 110,000 years to date with construction and manufacturing continuing to contribute through the month. Despite the July drop, the unemployment rate remained unchanged at its lowest level since 1970 due to a 0.2 point drop in the participation rate, the third drop in four months. With the unemployment rate remaining historically low, we continue to see resilience in the Canadian domestic economy. This strength was also underlined by the evolution of permanent employee wages, which rose 5.4% over the past twelve months, down from 5.6% in June but still historically high. At this juncture, the Bank of Canada is still on course for a rally at its next meeting on September 7th as labor shortages persist according to the latest figures from the Canadian Federation of Independent Business (CFIB).