Yahoo Finance Canada's unemployment rate jumps to 6.1%, raising bets for June rate cut
Canada’s labour market stalled in March, as it lost 2,200 jobs and the unemployment rate increased to 6.1 per cent, raising bets that the Bank of Canada will come off the sidelines and cut rates in June.
Economists polled by Reuters had expected a net gain of 25,000 jobs in March, and the unemployment rate to edge up from 5.8 per cent in February to 5.9 per cent.
The increase in unemployment, up 0.3 percentage points from the previous month, was driven by an increase of 60,000 people searching for work or on temporary layoff, Statistics Canada said on Friday. It's the biggest monthly jump since Aug. 2022, and the highest rate since January 2022, when unemployment reached 6.5 per cent. Outside the COVID-19 pandemic, the last time Canada's unemployment rate hit 6.1 per cent was Nov. 2017.
"The cracks that had been emerging within the Canadian labour market suddenly got a lot wider," CIBC economist Andrew Grantham wrote in a research note on Friday, noting that while the loss of 2,200 net jobs "isn't a large decline given the volatility of monthly labour market data", it came in contrast to Canada's surging population.
"While markets had been pushing back expectations for a first Bank of Canada interest rate cut following strong GDP data to start the year, today's labour force data should see them pulling those expectations forward again closer in line to our expectation for a first move in June."
Expectations that the Bank of Canada will soon cut rates have started to rise in light of recent data. Canada's inflation rate unexpectedly cooled to 2.8 per cent in February, marking the second month in a row that inflation hit within the central bank's target range of between one and three per cent.
Money markets increased their bets for a rate cut in June to close to a 75 per cent probability, from 67 per cent before the numbers were released.
"Combined with the recent run of soft CPI prints, these numbers should have the Bank of Canada opening the door next week to easing policy around the middle of this year," Desjardins managing director and head of macro strategy Royce Mendes wrote in a research note on Friday.
"Our view is still that the central bank will begin a forceful rate cutting cycle this year, which extends into next year, to offset the impacts on the economy from mortgage renewals and slower population growth."
The Bank of Canada is set to make its next interest rate announcement Wednesday.
"Today's report casts a cloud over the Canadian economy, but it is unlikely to change the Bank of Canada's thinking when it meets next week," TD Economics director and senior economist James Orlando wrote in a research note on Friday, noting that data outside the weak jobs report has been "quite strong" and "validated the Bank's decision to remain patient with the start of rate cuts."
"While it has afforded the central bank some extra time to wait to ensure inflation remains on its downward trajectory 2 per cent, markets are increasingly betting that the BoC will pull the trigger on its first rate cut in June."
Wage growth increased in March, with average hourly wages up 5.1 per cent year-over-year, after showing signs of cooling in February with an annual increase of 4.9 per cent.
Statistics Canada said there were fewer people working in the accommodation and food services industry (down 23,000), wholesale and retail trade (down 27,000) and professional, scientific and technical services (down 20,000). Employment in healthcare and social assistance increased in March (up 40,000) as well as in the construction industry (up 15,000).
In February, Canada's labour market added a net 40,700 jobs, more than what economists had expected, affirming the view that the Bank of Canada would continue to wait before loosening monetary policy.
With files from Reuters.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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