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'This is bananas': Canada's labour market blows past expectations, adding 90k jobs in April

A construction workers cuts wood at a residential building site in Mount Prospect, Ill., Monday, March 18, 2024. On Tuesday, April 30, 2024, the Labor Department reports on wages and benefits for U.S. workers during the first quarter of 2024. (AP Photo/Nam Y. Huh)
Canada’s labour market added 90,000 jobs in April. (AP Photo/Nam Y. Huh) (The Associated Press)

Canada’s labour market added a net 90,400 jobs in April and the unemployment rate remained unchanged at 6.1 per cent, blowing past analyst expectations. But underlying weakness means a June rate cut is still on the table for the Bank of Canada.

The April increase soared past analyst expectations, and marked the largest gain since January 2023. Analysts surveyed by Reuters had forecast an increase of 18,000 jobs in April, and for the unemployment rate to rise to 6.2 per cent.

While a June cut remains on the table for the Bank of Canada, money markets trimmed the bets of a rate cut from 54 per cent to 48 per cent. They are now fully pricing in a cut in September compared to July before the report was released.

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"Today's showy headline jobs increase will give the Bank of Canada some pause, since it reinforces the point that the economy is clearly not rolling over," BMO chief economist Douglas Porter wrote in a research note.

"Still, the reality is that economic slack is still rising... Our call is for a rate trim, but that will require a seriously cool core CPI result."

The employment gains were driven by an increase in part-time employment, Statistics Canada said, with 50,000 part-time jobs added in April. Jobs were added in the professional, scientific and technical services, accommodation and food services, health care and social assistance and natural resources, while employment fell in the utilities sector.

The unemployment rate held steady amid a surge in Canada's population. CIBC economist Andrew Grantham noted that the headline jobs increase "appears to largely reflect a further surge in the base population, as the labour force count catches up with the quarterly population tally." At the same time, average hourly wage growth – closely watched by the Bank of Canada – slowed slightly, rising 4.7 per cent year-over-year in April, following an annual growth rate of 5.1 per cent in March.

"With the unemployment rate remaining higher than it was at the start of the year and wage pressures easing slightly, the data is still consistent with a gradual loosening of labour market conditions," Grantham wrote in a research note on Friday.

"We continue to forecast a first interest rate cut at the next meeting in June, although after today's data that call relies even more heavily on core measures of inflation remaining subdued within the next CPI print."

Desjardins managing director and head of macro strategy Royce Mendes said the details of the April report "suggest that the labour market is actually exhibiting some evidence of slack."

"Still, after an increase of 90K jobs, the upcoming CPI report will take on even more importance in the Bank of Canada’s decision-making process, as policymakers debate whether or not cut rates in June," he wrote in a research note.

"But we’re not convinced that this report will materially change the Bank of Canada’s assessment of the labour market. So we’re sticking with our call that the central bank cuts rates in June."

The slowdown in wage growth and the fact that more than half of the total jobs added were in part-time work "suggests that slack in the Canadian economy is still growing," Karl Schamotta, chief market strategist at Corpay, wrote in a note on Friday. But the strength could potentially mean fewer rate cuts from the Bank of Canada.

"Taken in combination with other releases showing a mild acceleration in growth, today’s data could limit the extent to which the central bank cuts borrowing costs over the next year, and could contribute to a more optimistic rhetorical stance from policymakers in the weeks and months ahead," Schamotta said.

TD director and senior economist James Orlando wrote in a research note that the report is "likely to raise eyebrows at the Bank of Canada."

"Even for this notoriously volatile data, this was a shocker. Our own Chief Economist's immediate reaction was that 'this is bananas!'," Orlando said. TD expects the Bank of Canada to begin cutting rates in July.

"The central bank has been looking for evidence that inflation will continue moving towards the 2 per cent target. With the labour market showing renewed strength, there is potential for consumer spending to rise in the coming months, forcing inflation higher. This will be a concern for the BoC, which has seen this narrative play out in the U.S. over 2024."

With files from Reuters.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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