Labour Market is ‘Gasping for Air,’ Economist Says
John MacFarlane, Senior Reporter
July 9, 2024
Canada’s job market struggled in June, showing a net loss of 1,400 jobs, which was below expectations. The unemployment rate rose to 6.4%, and a National Bank economist warns that it could exceed 7% if the Bank of Canada (BoC) doesn’t cut interest rates soon.
Taylor Schleich, National Bank Financial Markets director of economics and strategy, emphasized that the labor market is struggling and shouldn’t be overlooked due to inflation concerns.
Schleich suggested that a rate cut in July is likely, unless June’s Consumer Price Index (CPI) report is exceptionally poor.
Schleich noted that despite May’s inflation data not being perfect, the unemployment signals are clear, and inflation has been more controlled recently. Without intervention, the unemployment rate could surpass 7% this year if current labor market trends continue.
In June, the BoC cut interest rates for the first time in over four years, bringing the benchmark rate to 4.75%. The next rate decision is on July 24, with mixed market expectations about another cut.
Canada’s June labor market data showed a net loss of 1,400 jobs, pushing the unemployment rate to 6.4%, up from under 5% in 2022. This increase is faster than in many other countries. Schleich pointed out that the 1.6% rise from 2022’s low is the largest in the G7 and fifth in the OECD.
Economists believe the unemployment rate where inflation remains stable (NAIRU) is around 6%. Schleich warned that the BoC needs to cut rates soon to stabilize unemployment before it rises further. Extending current trends, the unemployment rate could reach 7.5% by next spring, which interest rate cuts could help prevent.
While some economists cite strong wage growth as a reason to delay rate cuts, Schleich argued that wage growth typically lags behind labor market conditions and should slow down as the labor market weakens. There’s no need to raise wages when more workers are available.
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