Canada’s Unemployment Rate Climbs to 6.6% in August, Reaches Highest Level in Over Seven Years Excluding Pandemic

Canada’s unemployment rate ticked up to 6.6% in August, reaching a level not seen in over seven years, excluding the tumultuous pandemic years of 2020 and 2021. This increase reflects broader economic challenges facing the nation, as detailed in recent data released on Friday.

Despite the rise in unemployment, the Canadian economy saw a net addition of 22,100 jobs last month. However, this growth was driven entirely by part-time employment, according to Statistics Canada. This number fell short of analysts’ expectations, who had predicted a jobless rate of 6.5% and an addition of 25,000 jobs for August.

In financial markets, the Canadian dollar strengthened to C$1.3467 against the U.S. dollar, or 74.26 U.S. cents, reflecting a 0.3% increase on the day. This modest appreciation of the Canadian dollar highlights investor confidence amidst fluctuating economic indicators.

The recent uptick in unemployment can be attributed to a deceleration in Canada’s economic growth, which has been constrained by persistently high interest rates. While earlier in the year the economy benefited from a growing population, the GDP has struggled to keep pace, leading to rising unemployment and increasing concerns about a potential recession.

Since January 2023, Canada’s unemployment rate has surged by 1.6 percentage points. This rise has raised alarms among economists, some of whom are advocating for more substantial interest rate cuts to bolster economic activity. The youth demographic, particularly those aged 15 to 24, has been disproportionately affected, with unemployment among this group reaching its highest level in eight years during the summer.

In response to these economic pressures, the Bank of Canada recently reduced its key policy rate by 25 basis points to 4.25%. This cut marks the third consecutive rate reduction and signals the central bank’s willingness to further lower rates if necessary to support the economy. Bank of Canada Governor Tiff Macklem noted that slow employment growth could temper the robust GDP growth projections for the third quarter, emphasizing the need for continued economic support.

Market expectations for additional rate cuts in October have been adjusted slightly, with traders now predicting a 93% chance of a cut, down from 98% before the recent announcement. The financial community is also anticipating two more 25 basis point cuts by December.

The employment rate, reflecting the proportion of working-age Canadians (15 years and older) currently employed, has steadily declined to 60.8% in August. This marks a drop in 10 out of the past 11 months, signaling a concerning trend in job market participation.

Wage growth also showed signs of cooling, with the average hourly wage for permanent employees increasing at an annual rate of 4.9% in August, down from 5.2% in July. This deceleration in wage growth, while a factor in easing inflation pressures, remains a critical focus for the Bank of Canada as it navigates economic policy adjustments.