Canada Loses 2,800 Jobs in July as Unemployment Rate Holds at 6.4%

Canada's economy lost 2,800 jobs in July, keeping the unemployment rate at 6.4%, a 30-month high, as gains in full-time positions were offset by part-time job losses, according to data released on August 9.

Canada’s Job Market Struggles in July, Unemployment Rate Stays High Amid Economic Concerns

According to data released on August 9, Canada's economy saw a net loss of 2,800 jobs in July, as gains in full-time employment were offset by declines in part-time positions. Despite these job losses, the unemployment rate remained unchanged at a 30-month high of 6.4%. Analysts surveyed by Reuters had predicted a net gain of 22,500 jobs. They expected the unemployment rate to increase to 6.5% from June's 6.4%, mainly due to rapid population growth outpacing labor market absorption.

The data came shortly after a sharp increase in the U.S. unemployment rate, reaching a three-year high, which unsettled markets and raised concerns about a potential recession. In response, financial markets anticipate a nearly 50 basis point cut in U.S. interest rates, leading to a decline in stock and bond yields.

In Canada, money markets have factored in a 25-basis point cut at the Bank of Canada's (BoC) following the rate announcement on September 4, with expectations of nearly three cuts by the end of the year. Economists, however, viewed the August 9 jobs report as having a limited impact on the trajectory of rate cuts in Canada, as it continued to indicate a weakening economy.

"This report is broadly neutral in my eyes and changes little for the path of rates ... the Canadian economy is weak, inflation is on track, and the Bank of Canada needs to get a move on cutting rates," remarked Kyle Chapman, an FX Markets Analyst at Ballinger Group.

BoC Faces Pressure as Unemployment Rises, Participation Rate Hits 26-Year Low in July

Last month, the BoC implemented a second consecutive cut in its benchmark rate, noting that economic growth had lagged behind population growth, resulting in excess supply and slack in the labor market. Theunemployment rate, now at its highest since January 2022's 6.5%, has steadily risen by 0.7 percentage points since January.

Canada's labor force participation rate fell to a 26-year low of 65% in July, excluding the pandemic period, driven by a growing number of individuals no longer seeking employment. Statistics Canada highlighted that a more challenging labor market for young people might be causing some to suspend or abandon their job search efforts.

The Canadian dollar extended its losses, declining by 0.12% to 1.3744 against the U.S. dollar, or 72.76 U.S. cents. Meanwhile, yields on Canadian government two-year bonds dropped by 2.5 basis points to 3.451%. Average hourly wage growth for permanent employees slowed to an annual rate of 5.2% in July, down from 5.6% in June, a key metric monitored by the BoC due to its implications for inflation.

Employment in goods-producing sectors increased by 12,000 jobs, driven by growth in construction and utilities. The services sector saw a net loss of 14,800 jobs, with the most significant declines in wholesale and retail trade and finance-related positions.