However, Economists Suggest Bank of Canada May Continue Rate Hikes
In May, Canada experienced its first increase in unemployment rate since August 2022, indicating a loss of momentum in the labor market.
According to Statistics Canada, the economy shed just over 17,000 jobs during the month, causing the unemployment rate to rise to 5.2 per cent from the previous 5 per cent recorded in April. This result fell short of the expectations of Bay Street economists, who had anticipated a gain of more than 21,000 jobs. While it's premature to consider this a definite trend, consecutive job losses in the upcoming data releases might signal a potential slowdown in Canada's job market.
The labor market's robustness had been notable, as it consistently surpassed economist expectations with significant job gains. This factor is closely monitored by the Bank of Canada to gauge whether the economy is experiencing excessive demand. The underlying idea is that sustained consumer spending on goods and services drives employers to expand their workforces in order to meet this demand.
The recent job losses could serve as an indicator to the central bank that its aggressive rate hike strategy is achieving the desired impact.
Statistics Canada's Labour Force Survey for May was released merely two days after the Bank of Canada raised its key interest rate by another 25 basis points, reaching 4.75 per cent. The rate hike was prompted by concerns about an economy and labor market that had shown greater strength than anticipated during the first quarter.
In May, the most significant job losses were observed among the youth, with employment for those aged 15 to 24 declining by 77,000. The statistics agency attributed this to a potentially sluggish start to the summer job season for students, leading to a rise in the youth unemployment rate to 10.7 per cent, the highest since October 2022.
Certain sectors experienced a decrease in job opportunities, particularly in areas such as business, building, and other support services, where positions declined by 31,000. However, there was a positive development in the manufacturing sector, which saw an increase of 13,000 jobs.
After consistently surpassing expectations in recent months, the job market was viewed as the final factor that could trigger an economic downturn.
Canadian Imperial Bank of Commerce economist, Andrew Grantham, suggested that it might be premature for this data to signal a substantial slowdown in the economy to the central bank.
"In May, certain signs of strain emerged within the Canadian labor market, but they might not yet be significant enough to convince the Bank of Canada that inflation is poised for a notable decline," Grantham stated in a note following the release of the data. He also highlighted that average earnings rose by 5.1 per cent, surpassing the annual trend of 5 per cent.