Canada’s July jobs reading caught economists by surprise with a loss of 30,600 positions instead of an expected profit of 15,000 for the month.
Despite the negative reading coming on the heels of an even bigger drop in June, the jobless rate remained at its record low of 4.9 per cent, according to Statistics Canada, due to a drop in the participation rate. from Canada.
“Canada’s labor market is not in disarray,” said National Bank economists Kyle Dahms and Alexandra Ducharme, in their commentary on jobs, noting that to date, the private sector has added 110,000 jobs. The pair said they continue to see “resilience in the Canadian economy,” making them outliers among other big bank analysts.
After digesting the July numbers, most economists seem to have come away with two narratives:
- The Bank of Canada will not be dissuaded from raising rates further, and possibly another higher-than-normal hike.
- The jobs reading for July points to an economy that is starting to “run out of steam.”
Here are the economists in their own words:
Rishi Sondhi, TD Economics
“That’s two in a row in terms of weak headline job impressions, and employment has now averaged an 11k decline over the last three months. This is consistent with our view that economic growth will moderate in the second half of the year. The details leaned toward the softer end to July, as full-time employment accounted for a larger share of the overall job decline than in June, and hours worked also fell. The latter is particularly noteworthy, as it could signal a weak print for monthly GDP, following flat growth in May and a below-trend gain in June (based on Statcan’s flash estimate).”
Stephen Brown, Economics of Capital
“The second consecutive monthly drop in employment will surprise some at the Bank of Canada, but, with the unemployment rate unchanged at a record low and wage growth still strong, we doubt it will stop the Bank from raising its rate. politics in one more point. 100 bp in the next two meetings…. While the increase in average hourly earnings was a little lower than we expected, 0.4% m/m, that earnings is still too high to be comfortable in terms of meeting the CPI inflation target of 2% of the Bank. At the margin, the July LFS may tip the odds a bit towards a 50bp rate hike in September rather than a 75bp one, but we doubt that will be the deciding factor.”
Andrew Grantham, CIBC Economics
“Canadian employment figures were again somewhat disconcerting in July, with employment falling for the second month in a row, but the unemployment rate remained historically low. The 31K decline in jobs came against consensus expectations for a 15K gain and added to the 43K decline from the previous month. However, a two point decline in the participation rate meant that the unemployment rate remained at 4.9%. Job losses were unusually concentrated in the services sector, including wholesale and retail trade, education and health. With some of those sectors reporting high vacancy rates, labor supply seems to be the main problem, rather than demand. That said, the main difference between today’s report and last month’s is that wage growth unexpectedly slowed (to 5.4% y/y from 5.6% and versus consensus expectations of 5, 9%), although we always warn that the LFS salary series is extremely volatile month/month. While today’s numbers further muddy the waters for policymakers, the Bank of Canada is likely to focus on the historically low unemployment rate and strong wage growth to justify another non-standard rate hike in your next meeting.
Canada’s employment figures fall for the second month, but the unemployment rate remains at an all-time low
Meet the price ‘nerds’ who crunch numbers responsible for calculating Canada’s appalling inflation rate
What Economists Are Saying About Canada’s GDP Numbers and a Potential Recession
Carrie Freeston, RBC Economics
“In the coming months, we will start to see the economy lose steam. We are already seeing jobless claims rise south of the border, as US labor demand begins to cool. Canada will not be left behind. With the Bank of Canada’s overnight rate rising by 225 basis points (to 2.5%) since March, and at least another 75 basis points scheduled for the fall, inflation pressures will ease. And labor markets are expected to cool. Our forecast indicates that the unemployment rate will begin to trend upward in the coming months and into 2023.”
Douglas Porter, BMO Economics
“Canada’s labor market is clearly losing steam in a hurry, likely due to both a marked cooling in the broader economy and a lack of available workers. The downward trend in the participation rate is worth watching closely, especially for the 15-64 age group, with the potential to further tighten the labor market. For the Bank of Canada, the bottom line will be that while growth is clearly cooling, conditions remain tight and wages are accelerating. We believe this backdrop is consistent with another rate hike at the September meeting, but of a less aggressive nature than the 100bp mega move in July. We expect a 50bp rise at that point.”
Marc Desormeaux, Desjardins Economics
“July’s data was well below consensus projections and as such lowered our forecast for real Canadian GDP growth in the third quarter of 2022 to just under 1% (q/t saar). The slowdown in wage earnings suggests that some progress has been made in fighting inflation, but the rate of growth in hourly earnings continues to closely track prices. Consequently, while we believe that inflation may have peaked and we have previously noted that the Canadian economy has historically been sensitive to interest rate increases, we believe that the Bank of Canada will put more weight on the extremely tight labor market. adjusted and will increase rates by 50 basis points on its September price. meeting.”
Kyle Dahms/Alexandra Ducharme, National Bank Economics
Canada lost 31K jobs in July, a second straight monthly drop. Despite this development, Canada’s labor market is not in disarray. July’s losses were concentrated in public sector jobs. Indeed, this sector suffered its worst non-pandemic loss since 1976 (-51K), a disconcerting development considering the state of public finances at both the federal and provincial levels. Private sector employment, while also down in July, is still up 110,000 year-to-date with continued contribution from construction and manufacturing during the month. Despite the drop in July, the unemployment rate remained unchanged at its lowest level since 1970 due to a 0.2pp drop in the participation rate, a third fall in four months. As the unemployment rate remains historically low, we still see resilience in the Canadian national economy. This solidity is also confirmed by the evolution of the wages of permanent employees, which grew by 5.4% in the last twelve months, down from 5.6% in June, but still historically high. Right now, the Bank of Canada is still on track to go up at its next meeting on September 7 and labor shortages persist according to the latest figures from the CFIB (Canadian Federation of Independent Business).