By Robb M. Stewart
OTTAWA--Hiring in Canada ground to a halt last month, pushing the unemployment rate to a fresh more than two-year high and taking some of the heat out of the recent surprise acceleration in inflation ahead of the central bank's next rate decision.
The job market was effectively stalled in June, with 1,400 jobs lost for the month, allowing the unemployment rate to climb 0.2 percentage point to 6.4%, Statistics Canada reported Friday. The result undershot market expectations for the addition of a modest 25,000 jobs and a unemployment rate of 6.3%.
It is the second month this year that employment was virtually unchanged, even as continued high levels of immigration have expanded the working-age population. Employment has failed to keep pace with the growing labor force for more than a year, with the unemployment rate advancing 1.3 percentage points from the post-pandemic low in April 2023.
When calculated using U.S. Labor Department methodology, Canada's unemployment rate climbed to 5.4% last month from 5.2% in May. In contract, the U.S. added a slightly more-than-expected 206,000 jobs in June while its jobless rate ticked up to 4.1%.
The jobs lost in June, though slight, were focused on full-time positions. And in a further sign of a soft labor market, hours worked fell 0.4% from May.
For many economists, the data shortens the odds the Bank of Canada will follow up June's cut in its policy interest rate, the first by a Group of Seven central bank, with another reduction later this month. Those odds had shifted after annual inflation unexpectedly accelerated.
Wage growth remains elevated in Canada, tempering expectations for back-to-back rate cuts, though economists argue the steady rise in unemployment should mean that pay increases begin to slow later in the year.
"The slack that is opening up in the labor market should convince policymakers that inflation will ease toward their 2% target, even if there are short-term bumps in that path," said Andrew Grantham, senior economist at CIBC Capital Markets.
The household job survey is the last before the Bank of Canada's governing council will see before deciding on rates July 24, though there remains one further inflation report to come that now carries a lot of weight after the pick-up in annual inflation in May. Central bankers have said they are taking policy decisions one at a time, focusing on data as it comes in as they look for signs underlying inflationary pressures will continue to ease.
Wage growth, one area central bankers are looking at closely, accelerated for a second month running in June. Average hourly wages climbed 5.6% on a year earlier in June, quicker than the 5.2% rise the prior month and ahead of the 5.3% economists anticipated.
Given base-year effects when comparing wages a year ago contributed to the quickening in pay growth, some economists said the central bank should look through it.
"Although inflation picked up in May and some wage-related risks remain, it's obvious that the labor market is softening across the country. That should support efforts to contain price pressures in the months ahead," said Marc Desormeaux, principal economist at Desjardins.
Statistics Canada's survey showed there were 1.4 million unemployed people last month, a rise of 42,000 from the month before and 245,200 more than in June last year.
In what may be a sign Canadians are facing a tougher time finding work in the current market, just over 21% of those who were jobless in May moved into a job last month, compared with close to 27% in the pre-pandemic years 2017 through 2019. The proportion of long-term unemployment has also risen with the unemployment rate over the past year, with 17.6% continuously unemployed for 27 weeks or more in June, a rise of 4 percentage points on a year earlier.
Overall, jobs numbers fell in transportation and warehousing and in public administration in June, though there were more people employed in accommodation and food services and in agriculture. Job gains were focused in part-time roles, with employment edging up 1,900 from May, but offset 3,400 drop in full-time employment.
"The Canadian labor market can simply no longer be considered tight; in fact, it is quickly tipping in the other direction," said Bank of Montreal senior economist Douglas Porter, who believes that sets the stage for additional rate cuts this year, though not this month unless inflation data is exceptionally tame.
Write to Robb M. Stewart robb.stewart@wsj.com
(END) Dow Jones Newswires
07-05-24 1126ET
