The jobs market's momentum has chilled significantly
The Bank of Canada’s attempts to curb soaring inflation through a series of outsized rate hikes in recent months has chilled the labour market’s momentum with the estimated loss of 43,200 jobs in June and 30,600 jobs in July, according to veteran economist Sherry Cooper.
“The Canadian economy is slowing in response to the whopping rise in interest rates,” Cooper wrote in a new analysis. “Labour markets across the country are still very tight as massive job vacancies continue, but the market’s tenor (or mood) is shifting.”
And while labour shortages persist in customer-facing sectors like food and hospitality services, “we are also now hearing of layoffs and cutbacks in businesses that boomed during the lockdowns,” Cooper added. “Many of those over-expanded and are currently cutting back. A great Canadian example is Shopify, but the same can be said of major retailers like Walmart and Target, which now find themselves overstocked.”
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The BoC’s rate hike trend has serious implications on the future of Canada’s borrowing environment and jobs market, Cooper warned.
“Central banks will not and cannot return rates to last year’s lows,” Cooper said. “Not soon, and possibly not ever - unless you believe an equivalent global shutdown will be required sometime in the foreseeable future.”
This is despite inflation having possibly peaked since early June, with oil prices returning to levels seen before the outbreak of hostilities between Russia and Ukraine earlier this year.
“Central banks must continue tightening to return policy interest rates to normal levels,” Cooper said. “This means an overnight rate in Canada of roughly 3.5% and nearly 5% in the US. That’s still a far cry from today’s level of 2.5%.”
