Resilience in the economy should not be a reason to delay rate cuts.
While the stronger-than expected job report released on Friday speaks to the resilience of the Canadian economy, the long-term trend is an undeniable weakening in the job market.
In April, Canada added 90,400 jobs, far surpassing expectations. Gains occurred in both full-time (40,100) and part time (50,300) positions, according to Statistics Canada.
The unemployment rate remains unchanged at 6.1% and the employment rate remains at 61.4%. Population growth means that April’s gain was only enough to maintain the unemployment rate.
The labour force participation rate rose slightly to 65.4%, the first increase since June 2023.
Wage growth dropped to 4.8%, which reflects cooling labour demand and will lead to further easing in inflation. The job market has largely tipped into an employers’ market.
The Bank of Canada will consider long-term industry trends and inflation data before making its decision on rates next month. Resilience can help Canada avoid a recession, but only if rate cuts come soon enough. We still expect the first rate cut to occur next month while the second might be delayed until September.
On a year-over-year basis, the unemployment rate rose across demographic groups. The largest increase was among youth, as youth unemployment rose 2.9 percentage points to 12.8%, the highest since 2016 excluding the 2020-21 pandemic.
This is a sign of the Great Stay: for those who have jobs, layoffs are infrequent, but job openings have been scarce. And since young workers are just entering the workforce, it is challenging to secure a position.
Read more of RSM’s Canada’s insights on the economy and the middle market.
April job gains took place mainly in the services-producing sector. Professional services scored a rebound, adding 25,500 jobs. Accommodation and food services added 24,200 jobs, fully reversing last month’s loss.
Health care added 17,400, which is unsurprising given the investments in health care from the government. Over the past 12 months, the public sector added more jobs (208,000) than the private sector (190,000), as a restrictive rate environment discouraged businesses from investments and hiring.
The takeaway
The strong job report might not move the needle on the Bank of Canada’s rate cut in June as long as inflation stays cool in April’s CPI report.
