OTTAWA – The Canadian labour market has shown some signs of weakness with a higher unemployment rate and slower wage growth. However, despite these concerns, forecasters are still expecting the Bank of Canada to raise interest rates at its next meeting.
In June, the Canadian economy added 60,000 jobs, primarily in full-time work. However, as more individuals entered the labour market and the population continued to grow, the unemployment rate increased to 5.4%, the highest in over a year.
The rise in the unemployment rate alongside strong employment growth can be attributed to population growth, which set a new record in June. While these developments indicate some softening in the labour market, economists still anticipate a rate hike by the Bank of Canada next week.
Job gains were observed in sectors such as wholesale and retail trade, manufacturing, health care and social assistance, and transportation and warehousing. Although the labour market data was mixed, it is unlikely to deter the central bank from proceeding with a second consecutive 25 basis point rate hike.
The Bank of Canada had previously halted rate hikes but resumed in June due to economic data suggesting that previous rate increases were not sufficiently cooling the economy. The quarter percentage point rate hike brought the key rate to 4.75%, the highest since 2001.
The central bank closely monitors the labour market for signs of overheating in the economy, as it believes that the strong labour market contributes to high inflation. However, wage growth also softened in June, rising 4.2% compared to a year ago, down from a gain of 5.1% in May. This slowdown in wage growth may prolong the time needed for workers to recover their lost purchasing power during this inflationary period.
The weaker summer job season for students is another indicator of potential labour market weakness. Statistics Canada reported a decrease in student employment, particularly among young women. This trend suggests that employers may have fewer job openings and are not recruiting as intensely.
Despite these concerns, the Bank of Canada remains committed to monitoring economic data before making further rate decisions.