May 15, 2024
A surprisingly strong April jobs report is likely to “raise eyebrows” at the Bank of Canada, with economists and markets split on when interest rate cuts could begin.
The national unemployment rate was unchanged at 6.1 per cent in April as Canadian employers added some 90,000 jobs, Statistics Canada reported Friday.
The Labour Force Survey shows employment gains were concentrated in part-time work and in the private sector, both accounting for roughly 50,000 new positions.
The professional, scientific and technical services and food and accommodation sectors drove job gains last month, in addition to health care and social assistance and natural resources industries.
Despite a gain of 40,000 jobs in the month, youth aged 15-24 in particular are seeing unemployment rise at faster rates than other demographics, StatCan noted. The jobless rate for youth was up 2.9 percentage points year-over-year to 12.8 per cent in April, marking the highest unemployment rate for this demographic since July 2016, outside the COVID-19 pandemic.
Dawn Desjardins, chief economist at Deloitte Canada, tells Global News that it’s concerning to see a jump in unemployment for the youngest working age group, which is meant to build the foundation of the country’s future workforce. She says a high unemployment rate among youth is particularly concerning heading into the summer job season, when students are typically hunting for work.
“When we think about … youth trying to get their foot in the door of the labor market, it’s disturbing,” Desjardins says.
CIBC executive director of economics Andrew Grantham said in a note to clients Friday morning that the April jobs report “easily beat” economists’ expectations.
The April report marks a reversal from March where the economy shed 2,200 jobs.
While the latest job gains are “extraordinary,” Desjardins says it’s important to take a wider view of the “notoriously volatile” labour force survey. Factoring March’s stalled jobs report into account helps to “smooth out” the averages in the labour market, she says.
Jobs report could give Bank of Canada ‘some pause’
The Bank of Canada is watching the labour market, particularly the pace of wage growth, closely as it readies for its next interest rate decision in June. Average hourly wages were up 4.7 per cent in April, down from 5.1 per cent the month previous.
But the stronger-than-expected jobs report has divided economists reacting to the fresh data on Friday about what it means for the Bank of Canada.
James Orlando, director of economics at TD Bank, said in a note that even though the LFS is “notoriously volatile,” the April figures were a “shocker,” noting it was the biggest employment gain in 15 months.
“This report is likely to raise eyebrows at the Bank of Canada,” he wrote.
Renewed strength in the labour market will boost consumer spending power in the months ahead, Orlando said, which risks refuelling inflation at a time when the central bank is seeking confidence that price pressures will continue to ease.
Orlando said he is in the camp for a July cut, as it gives the central bank “a little more time to ensure inflation remains on the right track.”
Money markets trimmed their bets on a June rate cut to 42 per cent from 54 per cent, according to Reuters. Markets are now fully pricing in a cut in September compared to July before the report was released.
As of Thursday, bets for a June rate cut were as high as 62 per cent following a new financial stability report from the Bank of Canada that showed households are overall holding up well under the weight of higher interest rates.
But that report also noted that half of all outstanding mortgages in Canada are still set to renew in the next two years, typically with bigger jumps in their monthly costs than renewals in the past two years.
Desjardins says that the Bank of Canada is likely looking at those looming risks to Canadian households through the lens of the employment report.
“When we think about what’s helping households be able to pay their bills, of course, it’s jobs,” she says.
“From the Bank’s perspective, they’re looking at all of this data to say, is the economy vulnerable to slowing even more? Is there a vulnerability going to be created if people continue or start to really lose their jobs?”
Though the labour market remains firm, with little signs of steep job losses materializing, Desjardins believes the Bank of Canada could be in position to cut in June if the upcoming April inflation report shows cooling trends continue.
“It’s a very difficult balancing act at this stage,” she says. “But I do think that as long as they get some assurance and feel that the inflationary pressures are easing, heading towards their target over time, I think that they will decide to ease that policy rate.”
BMO chief economist Doug Porter agreed that the April LFS will give the Bank of Canada “some pause.” But he said the jump in 90,000 jobs will only spur “mild doubts” amid recent surges in the Canadian population offsetting any tightness in the labour market.
Job gains aside, Porter said that the unemployment rate rising more than a full percentage point year-over-year and signs of cooling in wages could end up being the trend monetary policymakers at the central bank focus on.
The upcoming inflation report for April will be the decider for the central bank, Porter said. He continues to pencil in a rate drop in June, with the caveat that such a cut will require a “seriously cool” core inflation reading at the next report to materialize.
While the April report was “certainly better than expected,” Grantham said the overall trend is still one of “loosening” in Canada’s once-tight labour market with signs of easing in wage pressures.
Grantham said he maintains the call for a June rate cut, but agreed with Porter that such a move will hinge on the next inflation report.
