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'Bank of Canada won't need to raise rates above five per cent': What economists say about huge job gains


Canada’s job gains blew the roof off expectations again but economists say there are signs of loosening in the labour market.

Just maybe not enough to stave off another interest rate hike from the Bank of Canada next week.

Statistics Canada data on July 7 showed the economy added 60,000 jobs in June, tripling estimates of a 20,000 gain, and more than reversing “the surprise 17,300 drop in May,” said Olivia Cross, assistant economist at Capital Economics, in a note.

The bulk of jobs gains were from an increase of almost 110,000 full-time positions as part-time jobs fell by almost 50,000.

While the jobs machine kept pumping, the unemployment rate rose to 5.4 per cent from 5.2 per cent. Statistics Canada attributed the increase to more people looking for work.


The Bank of Canada will welcome the jump in the unemployment rate, economists said. The central bank has been looking for the jobs market to slow to help dampen demand and pull inflation back down to its two per cent target.

Well-known Bay Street economist David Rosenberg said the increase in the unemployment rate and the participation rate — 65.7 per cent in June, up from 65.5 per cent in May — means “there is now more slack in the Canadian labour market — importantly, exerting downward pressure on wages.”

Average hourly wages rose 4.2 per cent in June, the slowest year-over-year increase since May 2022, Statistics Canada said.

BMO economist Benjamin Reitzes cautioned that average hourly wage data can be “volatile” adding that “a north-of-four-per-cent reading is still well above levels consistent with the two per cent inflation target.”

However, the Bank of Canada could take comfort from the fact that hourly wages for permanent employees were flat month over month an adjusted basis pushing the year- over-year pace down to 3.9 per cent from 5.1 per cent in May, Rosenberg said in his note.

Earlier in the week markets were pricing a slightly better than 50 per cent chance of a rate increase at the Bank of Canada next policy announcement on July 12. Following the jobs report, markets now bet there is 65 per cent chance of another rate hike next week, according to Bloomberg data.

Here’s what economists are saying about the latest jobs numbers and what they mean for the Bank of Canada.

Andrew Grantham, CIBC Economics

“Employment growth was brisk in June, but so was that of the labour force and as a result there was still evidence of a loosening of labour market conditions. … Despite the sizable gain in employment, the unemployment rate rose two ticks to 5.4 per cent due to an increase in participation and brisk population growth. A sharper-than-expected deceleration in wages also complicates the picture for the Bank of Canada. Overall, despite the strong headline gain in employment there are further signs of a loosening in labour market conditions within today’s job figures, albeit maybe not enough to prevent the Bank of Canada pulling the trigger on another interest rate hike as early as next week.”

Olivia Cross, Capital Economics

“The surge in employment in June suggests that another rate hike at the Bank of Canada’s meeting next week is nailed on. That said, with the unemployment rate also increasing and wage growth easing, we remain convinced that the Bank will not need to raise its policy rate above five per cent.

“Thanks to rapid population growth amid strong immigration and a rise in the participation rate, the labour force rose by a bumper 114,000, which drove another 0.2 percentage point increase in the unemployment rate, to 5.4 per cent. That helps explain the sharp slowdown in wage growth to 4.2 per cent, from 5.1 per cent in May – suggesting that monthly wages were unchanged in seasonally-adjusted terms – although there is probably also a compositional effect at play due to the large employment gain in the lower-paying wholesale & retail trade sector. Nevertheless, 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 two per cent target.”

Benjamin Reitzes, BMO Economics

“This is a solid report overall even if it has some blemishes. The big headline increase and ongoing strength in the labour market likely tilts the balance toward another 25 basis-point hike at next week’s Bank of Canada policy announcement.”

Nathan Janzen, RBC Economics

“The June labour market data was mixed but shouldn’t be enough to prevent the Bank of Canada from following through with a second straight 25 basis point interest rate hike at the policy decision next week. There are still signs that the economic backdrop is softening. Consumer delinquency rates are edging higher, job openings are edging lower, and wage growth is slowing. But the BoC highly likely planned more than one interest rate hike when they ended a short pause in increases last month. Economic growth data and ‘sticky’ core inflation readings since then haven’t been soft enough to derail those plans.”

Charles St-Arnaud, Alberta Central

“A robust labour market remains a challenge for the Bank of Canada. While the BoC will welcome the higher unemployment rate, it remains historically low and will need to rise further to create some slack in the labour market. Moreover, wage growth remains disconnected from weak labour productivity.

“The continued resilience of the labour market, the strength in the economy, the general lack of slack in the economy and sticky inflation are the main reason supporting another rate hike. On the other hand, there are tentative signs that inflationary pressure could be easing: lower wage growth and inflation excluding mortgage interest payments in line with the BoC’s inflation target.

“However, the BoC made it clear that it will choose inflation in the tug-of-war between fighting inflation and avoiding a recession. As a result, we believe the BoC will hike its policy rate by 25 basis points at next week’s meeting, bringing it to five per cent, and then pause for the rest of the year.”

David Rosenberg, Rosenberg Research

“The headline strength will receive plenty of attention but what really caught our eye were the encouraging inflation readings from a rising participation rate and plunge in wage growth. The two-year GoC rate, after initially spiking on the top-line growth print, slumped 13 basis points to the lows of the day after it became clear. The Canadian dollar followed suit, declining 0.4 per cent in the aftermath of the report. The market appears to agree with that assessment, which will bring more attention to next week’s BoC meeting just one month after the Bank reemerged from the sidelines.”

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