A shocking fall in the latest job numbers and a higher-than-anticipated rise in the unemployment rate have significantly boosted the odds of an interest rate cut when the Bank of Canada makes its next decision in June. The economy added just 7,400 jobs in April, considerably undershooting the FactSet consensus estimate of 10,000. Meanwhile, the joblessness rate jumped 0.2% to 6.9%, topping the 6.8% estimate, according to Statistics Canada’s April Labor Force Survey. Outside the pandemic, this is the highest unemployment rate Canada has seen since January 2017. The tariff hit and growing fears of a recession underpin the labor market setback, as businesses cut jobs and implement hiring freezes to ride out the economic uncertainty. The bump in the joblessness rate coincides with weaker February GDP data, suggesting economic growth has been stalled by unresolved US tariffs on Canadian goods and retaliatory Canadian levies on US exports. Analysts say this has implications for the central bank, which decided to pause rate cuts at its last meeting in April. A deterioration in the economic data since then has added pressure on the Bank to deliver another cut to help stimulate business and consumer spending. The Bank has scaled back its policy rate at seven times of its last eight meetings, taking it from a peak of 5.00% last summer to its current 2.75%.
Claire Fan, senior economist at Royal Bank of Canada
“There are now clearer signs that the ongoing trade war is hitting Canadian labor market. Employment would have fallen by 30k in April had it not been a surge in public admin jobs thanks in part to temporary election hiring. Most of the decline outside of public administration can be traced back to manufacturing, where employment declined for a third straight month in April. “Going forward, slower population growth and reduced demand for Canadian exports due to disruptive US tariffs will remain headwinds to job growth in Canada. The economic outlook still remains highly contingent on the evolution of international trade risks, but job openings have continued to edge lower, signaling more softening in hiring in the pipeline. Overall, we expect slowing conditions will push the unemployment rate up to over 7% this year.”
source: https://www.morningstar.ca/ca/news/264732/bank-of-canada-interest-rate-cut-more-likely-in-june-after-jobs-shock-.aspx