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Weak May Employment Numbers May Stop July Rate Increase

After a week of talk of more and more Bank of Canada rate increases, here is something that is interesting! The latest employment numbers for May in Canada came in lighter than anticipated, and this could have implications for the Bank of Canada’s rate announcement in July. With weaker employment figures, there may be a positive effect on the inflation numbers for May and June, potentially reducing the likelihood of a rate increase by the Bank of Canada.

May Employment Report

According to Statistics Canada, the Unemployment Rate in Canada rose to 5.2% in May, compared to 5% in April. The net change in employment showed a significant decrease of -17,300 jobs, falling far short of the market expectation of +23,200. The Participation Rate also saw a slight decline from 65.6% to 65.5%, and the annual wage inflation, measured by Average Hourly Wages, stood at 5.1%, slightly below April’s 5.2%.

Industry Breakdown

The report provided further insights into the specific industries affected. Employment in business, building, and other support services experienced a decline of 31,000 jobs (-4.4%), while professional, scientific, and technical services saw a decrease of 13,000 jobs (-0.7%). On the other hand, manufacturing witnessed an increase of 13,000 jobs (+0.7%), along with growth in “other services” by 11,000 jobs (+1.5%) and utilities by 4,200 jobs (+2.7%).

Market Reaction

The immediate market reaction to the employment report was observed in the USD/CAD currency pair, which rebounded and erased its daily losses, trading flat on the day slightly above 1.3350.

Bank of Canada and Rate Announcement

The weaker employment numbers for May could potentially impact the Bank of Canada’s decision regarding the interest rate announcement in July. The Bank unexpectedly raised its policy rate by 25 basis points to 4.75% in June, after maintaining it at 4.5% in the previous months. The upcoming labor market data, including payroll growth and wage inflation, will play a crucial role in influencing the Bank’s stance. Positive growth and inflation data could indicate a continuation of tightening policies, while a weak jobs report may reduce the likelihood of a rate increase.

Policy Outlook

The Bank of Canada has emphasized concerns about inflation consistently exceeding the 2% target. The decision to raise the policy rate was driven by these concerns. The Bank also noted that labor market conditions in Canada remained tight, with strong demand for labor and new workers being quickly hired. Unless there is a notable slowdown in the jobs market, the Bank is likely to maintain its focus on taming inflation, potentially leading to another rate increase in July.

Economists’ Perspectives

Citigroup economists, in a recent note to investors, projected that the Bank of Canada may increase the key rate to 5% at the next policy meeting. This expectation is based on factors such as tight labor market conditions, high wage inflation, and positive employment growth. However, a significant decline in wage growth and a disappointing employment figure could prompt a reevaluation of the Bank’s policy outlook, especially considering the May CPI inflation data.

The weaker May employment numbers in Canada have the potential to influence the Bank of Canada’s decision on interest rates in July. With employment figures falling below expectations, there could be a positive impact on inflation numbers for May and June, possibly reducing the likelihood of a rate increase. The upcoming labor market data, including wage growth and payroll figures, will be closely watched for further insights into the Bank’s policy direction.



Josh Tagg has been the owner of Mortgages For Less since 2006. During that time Josh has developed a reputation for being an industry leader and advocate for client education.


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