Canadian Labor Market Shows Signs of Softening as Unemployment Rises and Wage Growth Slows

The Canadian labor market is displaying some signs of weakening as the unemployment rate rises and wage growth slows down. However, despite these developments, forecasters are still anticipating an upcoming interest rate hike.

According to a report by Statistics Canada released on Friday, the economy added 60,000 jobs in June, largely driven by an increase in full-time employment. Nevertheless, as more Canadians actively searched for work and the population continued to grow, the unemployment rate rose to 5.4 percent, marking its highest level in a year. RBC assistant chief economist Nathan Janzen noted in a client memo that the unemployment rate can rise alongside strong employment growth due to record-breaking population growth, including an 84,000 monthly increase in June.

This marks the second consecutive month of rising unemployment rates, a trend that economists have been monitoring for any signs of labor market softening amid high interest rates.

The job gains were concentrated in sectors such as wholesale and retail trade, manufacturing, health care and social assistance, and transportation and warehousing.

The loosening of the labor market is likely to be welcomed by the Bank of Canada, as it seeks evidence that its aggressive rate hikes are effectively cooling down the economy.

Despite mixed labor market data in June, forecasters still expect the central bank to raise interest rates at its next policy decision scheduled for Wednesday. Janzen stated that the June labor market data, though mixed, should not be sufficient to prevent the Bank of Canada from proceeding with a second consecutive 25 basis point interest rate hike.

In June, the central bank ended its pause on rate hikes after several economic indicators suggested that interest rates were not high enough. The quarter percentage point rate hike brought the key rate to 4.75 percent, the highest level since 2001.

The Bank of Canada has repeatedly emphasized that Canada’s robust labor market contributes to high inflation, with concerns particularly surrounding the pace of wage growth. However, Statistics Canada reported that wage growth also slowed down in June, with a year-over-year increase of 4.2 percent compared to 5.1 percent in May.

The central bank has not provided clear indications of its plans, stating that its decision will be based on economic data.

Here are the unemployment rates by province in the previous month (numbers from the preceding month in parentheses):

– Newfoundland and Labrador: 8.8 percent (10.2)
– Prince Edward Island: 8.2 percent (7.2)
– Nova Scotia: 6.4 percent (5.7)
– New Brunswick: 6.4 percent (6.1)
– Quebec: 4.4 percent (4.0)
– Ontario: 5.7 percent (5.5)
– Manitoba: 4.3 percent (4.8)
– Saskatchewan: 4.7 percent (4.4)
– Alberta: 5.7 percent (5.7)
– British Columbia: 5.6 percent (5.0)

And here are the unemployment rates by city in the previous month (numbers from the preceding month in parentheses):

– St. John’s, N.L.: 5.0 percent (5.0)
– Halifax: 5.7 percent (4.9)
– Moncton, N.B.: 5.4 percent (5.5)
– Saint John, N.B.: 6.0 percent (5.2)
– Saguenay, Que.: 3.4 percent (3.4)
– Quebec City: 3.1 percent (2.6)
– Sherbrooke, Que.: 4.0 percent (4.6)
– Trois-Rivieres, Que.: 3.8 percent (3.9)
– Montreal: 4.4 percent (4.4)
– Gatineau, Que.: 4.2 percent (3.9)
– Ottawa: 4.4 percent (4.3)
– Kingston, Ont.: 3.9 percent (4.3)
– Belleville, Ont.: 6.7 percent (5.3)
– Peterborough, Ont.: 7.4 percent (7.1)
– Oshawa, Ont.: 5.2 percent (5.1)
– Toronto: 6.1 percent (5.9)
– Hamilton, Ont.: 5.0 percent (5.0)
– St. Catharines-Niagara, Ont.: 5.7 percent (4.5)
– Kitchener-Cambridge-Waterloo, Ont.: 6.2 percent (6.3)
– Brantford, Ont.: 3.9 percent (4.1)
– Guelph, Ont.: 4.2 percent (3.9)
– London, Ont.: 4.5 percent (4.4)
– Windsor, Ont.: 5.8 percent (6.5)
– Barrie, Ont.: 4.4 percent (4.6)
– Greater Sudbury, Ont.: 4.3 percent (4.0)
– Thunder Bay, Ont.: 3.9 percent (3.8)
– Winnipeg: 4.9 percent (4.9)
– Regina: 4.4 percent (4.6)
– Saskatoon: 4.7 percent (4.8)
– Lethbridge, Alta.: 5.3 percent (5.3)
– Calgary: 6.3 percent (6.3)
– Edmonton: 6.1 percent (6.0)
– Kelowna, B.C.: 2.9 percent (3.1)
– Abbotsford-Mission, B.C.: 5.2 percent (4.9)
– Vancouver: 5.4 percent (5.1)
– Victoria: 3.4 percent (3.5)