June rate cut expected following weak job numbers

Canada’s unemployment rate jumped to 6.1% in March as more people looked for work and job growth stalled — solidifying expectations of a June interest rate cut.

Statistics Canada’s labour force survey on Friday shows the jobless rate is up from 5.8% in February, marking the largest monthly increase in the unemployment rate since summer 2022.

Employment was little changed last month, with the economy shedding 2,200 jobs, after modest increases over the last several months.

“The cracks that had been emerging within the Canadian labour market suddenly got a lot wider,” wrote CIBC’s executive director of economics, Andrew Grantham, in a client note.

The March jobs report is the last piece of major economic data the Bank of Canada has to consider ahead of its next interest rate decision on Wednesday.

Investors will be looking for any hints from the central bank on when it plans to begin lowering its key rate, which currently sits at 5%.

Economists had been betting the Bank of Canada would deliver the first rate cut in June or July, however, expectations are now leaning more toward June. 

Nathan Janzen, RBC’s assistant chief economist says the jobs data throws some cold water on the strong economic growth figures from early 2024. 

“For [the BoC], it’ll be another reason to take the very strong GDP numbers that we’ve had early in 2024, with a bigger grain of salt,” he said. 

Statistics Canada reported last week that real gross domestic product increased by 0.6% in January. The agency added that it expected growth continued in February with a preliminary estimate pointing to a 0.4% gain.

Janzen says other indicators such as rising business bankruptcies and dwindling job vacancies suggest the economy is feeling the bite of higher interest rates.

Canada’s latest jobs data comes in stark contrast with employment figures south of the border also released Friday as the U.S. economy continues to be a global outlier.

U.S. employers added a sizzling 303,000 workers to their payrolls in March, bolstering hopes that the economy can vanquish inflation without succumbing to a recession in the face of high interest rates.
Meanwhile, Canada’s rise in unemployment comes as high borrowing costs weigh on businesses and strong population growth continues to add to the country’s labour supply.

The unemployment rate was up one percentage point compared with a year ago.

“The problem is that we got a slight decline in employment at a time when the population is still increasing, very, very quickly. And that was the main cause of concern within this report,” Grantham later said in an interview.

Statistics Canada says the rise in the jobless rate was driven by an increase of 60,000 people searching for work or temporarily laid off.

The total number of unemployed people in the country stood at 1.3 million last month, an increase of nearly 250,000 compared with a year ago.

Young people are particularly feeling the chill in the labour market. Employment among those aged 15 to 24 declined by 28,000 in March and the jobless rate for the group rose to 12.6%, the highest it’s been since September 2016 outside of pandemic years 2020 and 2021.

An RBC report released in January said students and new graduates, rather than new arrivals to Canada, are driving the increase in unemployment in the country.

“Close to half of the increase in the total number of unemployed people year-over-year in Canada … were students that were not in the job market and have started looking for work,” Janzen said.

Friday’s report shows job losses last month were concentrated in accommodation and food services, followed by wholesale and retail trade and professional, scientific and technical services.

Meanwhile, employment increased in four industries, led by health care and social assistance.

Despite weaker labour market conditions, wage growth continued to grow rapidly, with average hourly wages rising 5.1% annually.

Although economists are gearing up for rate cuts in the coming months, the job market is expected to remain weak for a while.

Janzen expects the unemployment rate to peak at 6.5% in the third quarter of the year, noting interest rates will continue to restrict growth until they return to normal levels.

“It’s not so much the Bank of Canada, when they start cutting interest rates, [will be] like stepping on the gas and helping the economy accelerate,” he said. “It’s just starting to ease off the brakes.”