‘Worst jobs reading in three years’ raises odds of Bank of Canada rate cut next month

Canada shed 41,000 jobs in July, the worst showing in more than three years. Photo by National Post

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Canada’s jobs market turned on its head in July, shedding 41,000 positions after gaining 83,000 in June.

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Analysts had called for an additional 10,000 jobs last month.

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Here’s what economists think about the jobs numbers and what they could mean for the Bank of Canada and interest rates.

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‘Unambiguously weak’: BMO

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“Our overall score for this (jobs) report was just 22.5 (out of 100), the worst reading in three years,” Douglas Porter, chief economist at BMO Economics, said in a note.

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Signs of weakness were scattered throughout the data.

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For example, while 10 of 16 sectors shed jobs, most of the losses were full-time, private-sector positions. Total hours worked declined, which bodes ill for gross domestic product in July, Porter said.

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Wage growth is also down two percentage points from the same time last year, at 3.3 per cent. In June, wage growth came in at 3.1 per cent.

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Four provinces recorded job losses, “but unfortunately it was the largest four,” said Porter, with British Columbia and Alberta each shedding just over 16,000 positions. That lifted Alberta’s unemployment rate to 7.9 per cent, compared to the national average of 6.9 per cent.

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“This is an unambiguously weak report… although it comes hard on the heels of an unambiguously strong report. Taken together, the overall picture is a soft economy, running with some excess capacity — not surprising in light of the trade uncertainty,” he said.

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Porter thinks the job market will continue to slow, in turn putting downward pressure on inflation, “eventually supporting the case for a return to modest rate cuts.”

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‘Made a mockery’: Capital Economics

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“The Labour Force Survey has once again made a mockery of the economist consensus,” Alexandra Brown, a North America economist at Capital Economics Ltd., said in a note, referring to the jobs flip-flop between June and July.

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Brown thinks there were some worrying signs in the report, including that most of the lost jobs were full-time, private sector positions.

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While the unemployment rate held steady at 6.9 per cent, that was due to a drop in the number of people working or looking for work. Meanwhile, the labour force shrank by 33,000 even though Canada’s population grew by 37,000.

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Brown thinks the jobs report opens the door for the Bank of Canada to start cutting interest rates again in September, “although a surprisingly strong CPI (consumer price index) print next week could prompt another pause,” Brown said.

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‘Back down to earth’: CIBC

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“The Canadian labour market came back down to earth with a bump in July,” Andrew Grantham, an economist at CIBC Capital Markets, said in a note.

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Looking at the seesawing from June to July, Grantham estimated that Canada gained 17,000 and 5,000 jobs on a three-month and six-month basis, signalling that the economy is still adding jobs, just not fast enough to keep pace with population growth.