Canada unexpectedly loses 2,800 jobs in July

Canada’s economy shed a net 2,800 jobs in July, as gains in full-time work were offset by part-time job losses, while the unemployment rate remained at a 30-month high of 6.4 per cent, data showed on Friday.

Analysts polled by Reuters had forecast a net gain of 22,500 jobs and the unemployment rate to rise to 6.5 per cent from 6.4 per cent in June. An increase in the unemployment rate was expected due to rapid population growth which the labor market was not able to absorb.

The numbers came after a jump last week in the unemployment rate in the U.S., Canada’s biggest trading partner, where a three-year high jobless rate roiled markets and stoked fears of recession.

Financial markets penciled in an almost 50 basis point cut in U.S. interest rates and stocks tumbled along with bond yields.

In Canada, money markets have priced in another 25 basis point cut at the Bank of Canada’s next rate announcement on Sept. 4, with almost three cuts by year end.

Economists saw the Friday jobs report as having minimal effect on the trajectory of rate cuts in Canada, as the numbers still pointed towards a weakening economy.

“This report is broadly neutral in my eyes and changes little for the path of rates … the Canadian economy is weak, inflation is on track, and the Bank of Canada needs to get a move on (in) cutting rates,” said Kyle Chapman, FX Markets Analyst at Ballinger Group.

The BoC, after announcing a second consecutive cut in its benchmark rate last month, noted that economic growth had been slower than population growth, leading to an excess supply in the economy and slack in the labor market.

The unemployment rate, at its highest since 6.5 per cent in January 2022, has been on an upward trend and has risen 0.7 per cent percentage points since January.

The participation rate of Canada’s labor force also declined to a 26-year low of 65 per cent in July, excluding the pandemic year, largely reflecting a cohort of people not looking for jobs.

“A more difficult labor market for young people may lead some to stop or pause their job search,” Statscan said in its report.

The Canadian dollar slightly extended losess to be down 0.12 per cent at 1.3744 against the U.S. dollar, or 72.76 U.S. cents. Yields on the Canadian government’s two-year bonds dropped by 2.5 basis points to 3.451 per cent.

The average hourly wage growth of permanent employees slowed to an annual rate of 5.2 per cent from 5.6 per cent in June, Statistics Canada data showed. The pay growth rate is closely tracked by the Bank of Canada (BoC) because of its effect on inflation.

Employment in goods-producing sectors increased by a net 12,000 jobs, led by construction and utilities, while the services sector lost a net 14,800 jobs, mostly in wholesale and retail trade and in some finance-related jobs.

(Reporting by Promit Mukherjee and Ismail Shakil in Ottawa; Additional reporting by Dale Smith; Editing by Andrew Heavens and David Holmes)