Slower hiring and wage growth could ease pressure on BoC
RBC Economics expects the Canadian labour market to continue weakening, potentially easing concerns at the Bank of Canada (BoC) as it proceeds with interest rate cuts.
The upcoming July jobs report is likely to show a continued slowdown in employment growth. The bank forecasted an addition of just 15,000 new jobs in July, reflecting a slowdown in employment gains that has been evident throughout the summer.
With Canada’s population rising rapidly, the unemployment rate is anticipated to increase slightly to 6.5% in July, up from 6.4% in June. For context, the unemployment rate was at 5.6% before the pandemic in early 2020 and dipped below 5% during the labour market tightness of summer 2022.
“Forward-looking indicators are showing little signs of recovery in hiring demand,” RBC economists Claire Fan and Abbey Xu wrote in their report. They noted a continued decline in job openings and a lack of enthusiasm from businesses regarding hiring and investment plans for the coming year, as reflected in the Q2 Bank of Canada Business Outlook Survey.
While employment growth has decelerated, wage growth has remained relatively high according to labour force data. This contrasts with other reports, such as the SEPH survey, which indicates a more noticeable slowdown in wage increases. Additionally, businesses’ expectations for wage growth have moderated significantly, paralleling the reduction in hiring demand.
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“We expect wage growth to trend lower and don’t think it will fuel future inflation,” the RBC economists added, suggesting that these trends should alleviate some of the BoC’s concerns regarding inflation as they continue to reduce interest rates.
In a broader economic context, RBC anticipates a 0.4% decline in Canadian goods exports for June, with imports projected to fall by 0.6%, narrowing the trade deficit to $1.7 billion. The decline in exports is partly attributed to a decrease in motor vehicle shipments and a drop in oil prices.
Meanwhile, US economic data showed a narrowing goods deficit of US$2.5 billion in June, driven by a 2.5% increase in exports and a smaller 0.7% rise in imports. The growth in US exports was broad-based, led by food and beverages, while increased imports were mainly supported by industrial supplies, offsetting a decline in auto imports.
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