Yahoo Finance Unexpected job market pullback signals rate hikes may start to bite in Canada
The unemployment rate rose for the first time in nine months
Canada's economy shed 17,000 jobs in May, Statistics Canada reported on Friday, in what could be an early signal the Bank of Canada’s aggressive rate hiking campaign is starting to take hold of the labour market.
The consensus expectation among economists surveyed by Bloomberg was for a 21,300 gain.
StatCan reported the job declines were concentrated in full-time work, while part-time jobs modestly increased.
The labour market had been defying gravity for months and was bound for some givebackTD Economics' James Orlando
The summer job market for students in particular had a major setback in May. Employment among those aged 15-24 plunged by 77,000. Meanwhile, employment for people aged 25 to 64 surged by 63,000. Historically, May is a strong month for youth employment as businesses hire students to gear up for the busy summer.
The unemployment rate rose to 5.2 per cent, marking the first increase in nine months.
Average wage growth slowed slightly to 5.1 per cent.
Total hours worked fell 0.4 per cent month-over-month, which could have negative implications for GDP.
“While most of the job losses were concentrated in the younger age cohort (15-24 year-olds), the drop in full-time jobs and reduction in hours worked point to weakness under the hood,” James Orlando, director and senior economist at TD Economics, said in a note.
“The labour market had been defying gravity for months and was bound for some giveback. Our forecast implies that the massive job gains of prior months are behind us, causing the unemployment rate to rise towards 6% by the end of this year.”
In the first quarter alone, 231,000 jobs were added, making it the best non-pandemic quarter on record, according to BMO Capital Markets.
While one month doesn’t make a trend, it’s the first sign the labour market might be easing, which is viewed by the Bank of Canada as key to slowing the overall economy.
On Wednesday, the central bank raised its benchmark rate by a quarter point to 4.75 per cent, citing the stronger-than-expected economy and the risk that inflation gets stuck above its two per cent target.
July rate hike still on the table
This latest labour data will help inform the central bank’s July rate decision, though the majority of economists still predict another rate increase.
“While this is an ugly set of jobs data, the Labour Force Survey is notoriously volatile. As a result, we’ll take this reading with a grain of salt,” Royce Mendes, head of macro strategy at Desjardins, said in a note.
“It would need to be corroborated with a host of additional information to change our view that the Bank of Canada will hike again in July. With population growth once again very strong in May, the underlying strength in consumption and housing is likely to be slower to adjust even if these numbers turn out to be a true reading of employment.”
CIBC Capital Markets senior economist Andrew Grantham says despite the “cracks” that appear to be forming in the labour market, they’re not big enough to convince the central bank that inflation is about to significantly cool.
“The weak jobs figure will have markets paring back expectations for further interest rate hikes from the Bank of Canada, although policymakers will probably like to see some further softening ahead to convince them that no more rate increases are needed,” he said.
Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.
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