Canada cuts jobs for second month as labour force shrinks

Bloomberg

Canadian employment unexpectedly falls for a second straight month in July as workers dropped out of the labour force, adding to evidence the economy is losing momentum.
The country shed 30,600 jobs last month, Statistics Canada reported in Ottawa, a surprise negative reading compared to the 15,000 gain anticipated by economists. Still, the unemployment rate held at a record low 4.9% as the labour force shrank by a similar amount.
The employment drop last month adds to a loss of 43,200 jobs in June, marking a sudden stop to Canada’s yearlong labour market boom. The country created more than 1 million jobs in the 12 months through May,
before the two-month slump began.
The question now is whether the slowdown is being driven by labour supply factors or by a weakness in underlying demand brought on by the initial impact of higher borrowing costs. The mix is important to the Bank of Canada, which has been tightening policy aggressively in part because of worries that demand for labour has far outpaced supply.
The data, however, continue to point to an extremely tight labour force, even with the fall in employment. Labour force participation rates fell for a second month, dropping to 64.7% from as high as 65.4% in March. The number of Canadians in the labour force fell by 27,000, mostly women, adding to the 97,500 drop in June.
The average hourly wage rate was up 5.2% from a year ago, unchanged from June and matching the fastest increase in records dating to 1997, outside of the pandemic. A 0.5% decline in hours worked in July, however, suggests some potential weakness on the demand side.
“Canada’s job market is clearly losing momentum in a hurry, likely due to both a marked cooling in the broader economy but also because a lack of available workers,” Doug Porter, chief economist at Bank of Montreal, said in a report to investors.
Swaps trading shows investors are anticipating the country’s central bank will hike its policy interest rate by another full percentage point by the end of this year. Since March, the Bank of Canada has hiked its benchmark overnight rate to 2.5%, from 0.25%.
“The second consecutive monthly decline in employment will raise a few eyebrows at the Bank of Canada but, with the unemployment rate unchanged at a record low and wage growth still strong, we doubt it will prevent the Bank from hiking its policy rate by a further 100 basis points at the next two meetings,” Stephen Brown, senior Canada economist at Capital Economics, said in a report to investors.
The Canadian dollar fell 0.9% to C$1.2978 per US dollar at 9:30 a.m. in Toronto trading. Yields on Canadian government two-year bonds rose 7 basis points to 3.23%. The US also released employment data on Friday that showed non-farm payrolls rising 528,000 last month, beating all estimates and the largest increase in five months.
The discrepancy could reflect the fact that Canada’s jobs market has had a much fuller recovery than the US from the pandemic.
In terms of composition of employment losses, the bulk were in public sector employment, with a smaller drop in private sector staff. That was offset by a rebound in the number of workers who classify as self-employed.
By sector, the biggest declines were recorded in wholesale and retail, health care and education. Women between the ages of 25 to 54 saw the sharpest declines in employment and labor force.