The Canadian economy shed the most jobs month over month for over three years, but economists say the central bank won't be rushed into a cut
Canada’s labour market took its biggest hit last month since the beginning of 2022, losing 40,800 jobs as trade tensions continue to cloud the economic outlook.
Statistics Canada said on Friday that declines in full-time work helped spur a big – and unexpected – overall drop, although the unemployment rate remained unchanged at 6.9%.
Odds of a Bank of Canada interest rate cut in September jumped on the back of the news, although a hold remains a clear possibility. Overnight swap traders view a 40% chance that the central bank will lower rates next month, but fully expect at least one 25-basis-point cut between now and the beginning of 2026.
Bank of Montreal (BMO) chief economist Doug Porter said in a note that the latest figures were “unambiguously weak” although they arrived after a surprisingly strong June report.
He said the central bank will still be keeping a close eye on the inflation outlook as it weighs its next move, with a noticeable slowdown required before its September decision to justify a reduction.
“We expect that the job market slack will put downward pressure on inflation, eventually, supporting the case for a return to modest rate cuts,” he wrote. “And it appears that the trade uncertainty will be with us for some time yet.”
TD managing director and senior economist Leslie Preston also said the Bank of Canada will be in no rush to cut rates despite July’s weak jobs report.
“The Bank of Canada has a fair bit of time before its next rate-setting date on September 17,” Preston wrote. “Today’s jobs report likely won’t move the needle much on the Bank’s thinking on the economy relative to its recent monetary policy report.
“We think a strong argument for further rate cuts remains in Canada. We’ll see if the BoC agrees.”
Younger Canadians are struggling in the current job market, with the youth unemployment rate jumping to 14.6% – a 15-year high not including the pandemic.
The construction sector spilled 22,000 jobs in July compared with the prior month, while information, culture, and recreation took a hit of 29,000 jobs.
Transportation and warehousing saw a boost – gaining 26,000 jobs – while employment in business building and other support services fell by 2.8% month over month, by 19,000.
The Bank of Canada’s next decision on interest rates is scheduled to take place on September 17.
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