OTTAWA (Reuters) – Canada’s jobless rate rose to a 29-month high of 6.4%, data showed on Friday, underscoring that people may be losing jobs as the labor market struggles to absorb a population growing rapidly.
The jobs report, which also showed youth unemployment hit a near-decade high excluding the pandemic years, prompted money markets to raise bets on a rate cut by the Bank of Canada this month to around 56%. from 40% the day before.
Economists pointed out that the rising unemployment rate could indicate that Canada is flirting with recession.
“A sustained deterioration is usually only seen during recessions,” Doug Porter, chief economist at BMO Capital Markets, wrote in a note, noting the 1.4 percent increase in the unemployment rate since last January.
He said that if the unemployment figure was considered independently, it was likely that the central bank would cut rates in July.
Canada lost a net 1,400 jobs in June, Statistics Canada said, against analysts’ forecasts of 22,500 jobs, in further signs of weakness in economic conditions.
Royce Mendes, head of macro strategy at Desjardins Group, said the sharp rise in the unemployment rate will have many questioning whether Canada has entered a recession.
“Cutting interest rates is the only way to cushion the blow from future mortgage renewals and keep alive any hope of a soft cut,” he said, adding that BC will cut rates by 25 basis points this month and two more rate cuts in three meetings thereafter.
BoC Governor Tiff Macklem said last month that the labor market had cooled reasonably in recent months and that achieving the central bank’s cooling inflation target did not need to involve a sharp rise in unemployment.
There was even room for economic growth and job creation without jeopardizing the bank’s 2% inflation target, the governor said.
The story continues
The Canadian dollar, which was largely unchanged in early trade, was down 0.25% at 1.3647 against the US dollar, or 73.28 cents, by 1352 GMT.
Two-year Canadian government bond yields fell 9.1 basis points to 3.961% after the jobs report.
Despite rising unemployment, wage growth has been a sore point in BC’s efforts to tame inflation, and it rose again in June.
Economists, however, said this will come quickly as the unemployment rate rises.
Average hourly wage growth of permanent workers accelerated to an annual rate of 5.6% from 5.2% in May. The rate of wage growth – closely watched by the Bank of Canada (BoC) for its effect on inflation – was the fastest since December’s 5.7%.
The central bank cut its key policy rate for the first time in more than four years in June and said more cuts were possible if inflation continued to cool.
The bank’s next rate announcement is on July 24, roughly a week after the release of the next inflation data, which is seen as a critical factor in strengthening expectations for a final rate cut this month.
In June, full-time jobs jumped, while part-time positions increased in the month.
Employment in the goods sector increased by a net 12,600 jobs, mostly in agriculture, while the services sector lost a net 14,100 jobs, led by transportation and warehousing and information, culture and recreation.
By Promit Mukherjee and Ismail Shakil
(Additional reporting by Dale Smith; Editing by Chizu Nomiyama)
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