Job gains raise questions about rate cuts
Canada's economy added about 90,000 jobs in April, surpassing economists' expectations of a 20,000 gain. The unemployment rate held steady at 6.1% despite the surge, according to the latest Labour Force Survey from Statistics Canada.
The stronger-than-anticipated report has led to revised forecasts on when the Bank of Canada might start cutting interest rates. While markets had previously anticipated a high probability of a rate cut in June, the odds have now dropped to around 50%.
The April surge follows a disappointing March, when 2,200 job losses pushed the unemployment rate to 6.1%—the highest level since 2021 outside the pandemic period.
However, some analysts argue that the headline numbers may mask underlying labour market weakness. CIBC economist Andrew Grantham pointed to the economy's reliance on public sector hiring, which has driven over 60% of job growth in the past year.
Another factor is the sticky issue of counting non-permanent residents, whose job prospects have deteriorated the most over the past year. Grantham suggested if a greater proportion of this group were included in the data, the unemployment rate could be 0.2% higher.
“With the unemployment rate for those non-landed immigrants that are counted having risen a lot more than the rest of the population over the past year, it’s possible that the jobless rate would actually be higher if a greater proportion of this group were included in the labour market data,” Grantham said in a statement.
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These insights are critical as the Bank of Canada likely uses labour market data to gauge economic slack, which in turn influences its interest rate decisions.
“Because of this, understanding some of the idiosyncrasies of the labour market, and how, for example, the headline unemployment rate may not be a perfect guide of slack in the economy, will be important in determining when and how quickly interest rates need to come down,” added Grantham.
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