That's despite the unemployment rate rising for the second straight month
Despite an apparent softening that saw the Canadian unemployment rate rise for the second straight month, data from Statistics Canada indicated that the economy saw the addition of 60,000 jobs last month – significantly increasing the possibility of a rate hike by the central bank this week, according to market observers at the country’s largest banks.
“The numbers… just kind of reinforce expectations that the bank will move [this] week,” Robert Kavcic, senior economist at BMO Capital Markets, said in an interview with BNN Bloomberg. “The labour market is the last thing to crack.”
Kavcic added that when it comes to the central bank’s next moves, the housing sector bears further watching.
“If the most interest rate sensitive sector of the economy (housing) is actually stabilizing and accelerating – as it has been in Canada through spring – then that’s a pretty clear warning shot that policy isn’t tight enough,” he said.
Total labour market gains far exceeded previous forecasts of an increase of 20,000 jobs in June, despite the unemployment rate growing to 5.4%.
“The data are probably just strong enough to see policymakers pull the trigger on another 25-basis-point interest rate hike [this] week, rather than wait until September as we had previously forecast,” according to Andrew Grantham of the Canadian Imperial Bank of Commerce. “We still think that the rate of 5% reached at the time of the next hike will prove to be the peak, as evidence that the economy is slowing appears to be mounting.”
On the other hand, Olivia Cross of Capital Economics said that the latest labour market results are a good early sign that the BoC’s inflation management strategy actually has a material impact.
“The rise in the unemployment rate and easing of wage growth will give the Bank of Canada some comfort that, despite continued strong labour demand, CPI inflation should continue to slow toward the 2%,” Cross said, adding that the likely July 12 hike might be the last one in the current cycle.
