The national unemployment rate ticked higher again in August as the labour market continues to cool, prompting some economists to wonder if the Bank of Canada should be cutting interest rates faster.
Statistics Canada said Friday that the unemployment rate rose to 6.6 per cent, up from 6.4 per cent the month before, amid a gain of 22,000 net jobs. The increase reflected gains in part-time work but declines in full-time jobs.
The national unemployment rate now stands at its highest point since May 2017, according to StatCan, outside the pandemic years.
Canada’s jobless rate has continued to rise despite largely continuing to add positions as rapid population growth grows the overall labour pool.
StatCan noted that students in particular faced a difficult summer job market. The unemployment rate among students returning to school in the fall was 16.7 per cent, the highest level since 2012, excluding the pandemic.
One sector continuing to see growth in August was the health-care and social assistance market. In the preceding year, this sector added 157,000 positions, which StatCan says accounts for nearly half of all job growth in the country over that period.
Educational services also added jobs in August, offset by losses in professional, scientific and technical services as well as “other services,” which StatCan says includes personal and repair work.
Average hourly wages rose 5.0 per cent in August, the agency says, down slightly from 5.2 per cent the month before.
The latest read of the Canadian labour market comes two days after the Bank of Canada delivered its third consecutive interest rate cut, lowering borrowing costs in an effort to relieve some pressure on the economy.
TD Bank economist Leslie Preston said in a note Friday that the weakness in the August jobs report “is giving the OK” to the central bank to keep cutting rates; she’s expecting two more drops of a quarter-percentage point each at the remaining decisions this year.
Fresh labour data released in the United States on Friday also comes a couple of weeks before forecasters expect the U.S. Federal Reserve to kick off its own easing cycle.
Employers added 142,000 jobs last month, up from a scant 89,000 in July, the Labor Department said Friday. The unemployment rate ticked down to 4.2 per cent from 4.3 per cent in July, which had been the highest level in nearly three years.
Friday’s mixed report on the job market raises the question of how large a cut the Fed will announce after it meets Sept. 17-18. The central bank could reduce its benchmark rate by a typical quarter-point or by a larger-than-usual half-point. Wall Street traders now foresee a roughly 50-50 likelihood of either scenario, according to futures prices.
Calls for 50-basis-point cut in Canada
In Canada, more signs of weakness in the labour market have some economists wondering if the central bank should pick up the pace of cuts.
With the unemployment rate nearly two percentage points higher than the all-time low of 4.9 per cent in June 2022, CIBC senior economist Andrew Grantham argues there are signs the jobs market is rapidly weakening more than first anticipated.
“Because of this, we think the Bank should be considering a faster pace of cuts to get interest rates to less restrictive levels,” he wrote in a note to clients Friday morning.
But he added that the Bank of Canada hasn’t shown signs of wanting to hurry the easing cycle along, “so until we hear some hints of a rethink, or see further weakness in the data, we’ll stick to our forecast for consecutive 25 (basis point) reductions.”
Financial markets trimmed their expectations of a rate cut in October to 93 per cent from 98 per cent before Friday’s announcement, according to Reuters. Traders are fully pricing in two 25-basis-point rates cut by December, with a small minority also factoring in a jumbo 50-basis-point cut next month.
BMO chief economist Doug Porter said in a note that there are signs of more slack building in the labour market, particularly around declines in hours worked in August that suggest the economy continued to stall through the tail-end of the summer.
He said it’s likely that the national jobless rate will reach seven per cent, with Ontario and Alberta already above that point.
Bank of Canada governor Tiff Macklem said at Wednesday’s rate cut decision that the door is open to a larger drop than 25 basis points if economic data ends up weaker than expected in the months ahead.
With inflation continuing its cooling trends back to the Bank of Canada’s two per cent target, Porter said the worse the deterioration in the labour market, the more likely it is that the central bank takes an oversized step on its path back to a more neutral policy rate.
“There is still a lot of data before the October (Bank of Canada) meeting, but the odds of a 50 (basis point) rate cut are building,” he said.
The central bank will get another jobs report for September as well as two more readings on inflation progress before its next interest rate announcement on Oct. 23.
Data earlier in the week also showed that Canada is falling behind again when it comes to productivity. This measure of output per hour worked declined for a seventh time in the last eight quarters in the second quarter of 2024, according to StatCan.
The Bank of Canada has flagged that ongoing wage growth, when not accompanied by rising productivity, is unsustainable on the path back to two per cent inflation.
But Grantham noted that there were other signs of wages cooling in the productivity report this week that should ease worries among monetary policymakers.
— with files from The Associated Press, Reuters