Canada’s jobs report for June underscores the weakness of the labour market and calls for another rate cut in July.
The economy lost 1,400 jobs in June. The unemployment rate jumped by 0.2 percentage points to 6.4 per cent and the employment rate fell by 0.2 percentage points to 61.1 per cent.
Job numbers can fluctuate from month to month and display strong seasonality, but the overall trend is unmistakable: There is not much steam left in the economy, and it needs rate cuts to revive.
The employment rate has decreased eight times in the past nine months, falling by 1.3 percentage points from the recent high of 62.3 per cent early last year.
Over the past year, job gains were largely supported by the public sector, which added 183,000 jobs, while the private sector added only 106,000 positions despite being much bigger.
If any segment of the workforce is being squeezed the most, it’s younger workers entering the labour force for the first time as employers pause hiring instead of issuing layoffs.
Youth unemployment rate rose by 0.9 percentage points to 13.5 per cent, the highest in a decade, excluding the pandemic years. The employment rate of returning students was 46.8 per cent, its lowest point since 1998.
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Squeezed by high interest rates over the past year, employers have restricted hiring, making it a particularly challenging summer for job seekers, especially younger workers, the unemployed and new immigrants.
Canada’s population grew by 100,000 in June, mostly through immigration, so most of the population added are of working age.
Even if the Bank of Canada’s policy rate falls to 4.5 per cent, it will remain restrictive and drive up the unemployment rate.
There is no way job growth can keep up with population growth in the coming months. Hiring will resume only toward the end of the year as more rate cuts materialize.
Although wage growth climbed back to 5.4 per cent and was broad based, those gains were partially because of the favorable comparisons to a year ago and are expected to decelerate in the second half of the year.
The increase in wages is also a sign of the post-pandemic economy, which has been characterized by higher wage growth and a higher overall cost of doing business.
A silver lining? The flexibility gained during the pandemic seems to be helping women stay in the workforce. While the employment rate of core-aged women has trended down from a record high last year, it remained well above pre-pandemic levels.
Unlike in the past several years, job losses in June were concentrated in the services-producing industries as the sector lost 14,100 positions, including in trade (10,300); transportation and warehousing (11,700); professional services (10,000); information, culture and recreation (11,000); and public administration (8,800).
Gains were in accommodation and food services, which increased by 17,200 jobs, and agriculture, which rose by 12,600. Both can be attributed to seasonality as these are industries that pick up in the summer.
The takeaway
Even though May’s consumer price index accelerated, it remains below 3 per cent and is not enough to buck the trend of a cooling economy evident in June’s job report. Unless June’s CPI shows substantial increases, one could expect a rate cut from the Bank of Canada this month.
