Author: Promit Mukherjee and Ismail Shakil
OTTAWA (Reuters) – Canada’s unemployment rate rose to a 29-month high of 6.4%, data showed on Friday, underlining the risk of people losing their jobs as the labor market struggles to absorb a rapidly expanding population.
The employment report also showed that youth unemployment reached its highest point in nearly a decade (excluding the epidemic years), prompting money markets to increase bets on a rate cut by the Bank of Canada this month to about 56% from 40% a day ago.
Economists say rising unemployment could mean Canada is on the verge of recession.
“Sustained deterioration typically occurs only during recessions,” Doug Porter, chief economist at BMO Capital Markets, wrote in a note, noting that the unemployment rate has risen 1.4 percentage points since January of last year.
He said the central bank would likely cut interest rates in July if the unemployment data were taken into consideration alone.
Statistics Canada said Canada lost a net job loss of 1,400 jobs in June, and analysts predict employment will increase by 22,500 jobs, further showing the weakening economic conditions.
Royce Mendes, director of macro strategy at Desjardins Group, said the sharp rise in unemployment will have many questioning whether Canada has entered a recession.
“Lower interest rates are the only way to cushion the blow from the upcoming mortgage renewals and keep hopes of a soft landing alive,” he said, adding that the Bank of Canada would cut interest rates by 25 basis points this month and two more in 2019. Second-rate.
Bank of Canada Governor Tiff Macklem said last month that the labor market has cooled reasonably in recent months and that achieving the central bank’s goal of cooling inflation does not require a sharp increase in the unemployment rate.
The governor said there was even room for economic growth and job creation without affecting the central bank’s 2% inflation target.
The Canadian dollar was little changed against the U.S. dollar in early trade at 1352 GMT, down 0.25% to 1.3647, or 73.28 U.S. cents.
After the employment report was released, the Canadian government’s two-year government bond yield fell 9.1 basis points to 3.961%.
Wage growth has been a pain point in the Bank of Canada’s efforts to curb inflation and rose again in June despite rising unemployment.
However, economists say this will quickly outpace rising unemployment.
The average hourly wage growth rate for regular employees accelerated to an annual rate of 5.6% from 5.2% in May. The Bank of Canada (BoC) is closely watching wage growth, which was the fastest since 5.7% in December, due to its impact on inflation.
The central bank cut its key policy rate in June for the first time in more than four years and said further cuts may be possible if inflation continues to cool.
The bank’s next interest rate announcement will be on July 24, about a week after the next inflation data, which is seen as a key factor in cementing expectations for a clear rate cut this month.
In June, full-time jobs decreased and part-time positions increased.
The goods sector saw a net increase of 12,600 jobs, most of which were in the agricultural sector; while the services sector saw a net loss of 14,100 jobs, with the largest decreases in the transportation and warehousing and information, culture and entertainment industries.
