Signs of Loosening in the Labor Market
While Canada experienced robust job growth in June, economists point out signs of loosening in the labor market, potentially warranting further action from the Bank of Canada. Despite exceeding expectations with the addition of 60,000 jobs, the unemployment rate saw a slight increase from 5.2% to 5.4%. This rise was attributed to a larger labor force participation as more individuals entered the job market seeking employment.
Downward Pressure on Wages
The rise in unemployment and participation rates indicates a loosening labor market and exerts downward pressure on wages, according to renowned economist David Rosenberg. Average hourly wages, though still at a relatively high level, rose at a slower pace of 4.2% in June, compared to the previous month. This easing in wage growth could help the Bank of Canada in its efforts to manage inflation and bring it back to its targeted two percent.
Expert Opinions on the Rate Hike
Economists have shared their perspectives on the latest job numbers and their implications for the Bank of Canada’s decision regarding interest rates. Here are a few notable quotations:
Andrew Grantham, CIBC Economics: “Despite the strong headline gain in employment, there are further signs of a loosening in labor market conditions… maybe not enough to prevent the Bank of Canada pulling the trigger on another interest rate hike as early as next week.”
Olivia Cross, Capital Economics: “The surge in employment in June suggests that another rate hike at the Bank of Canada’s meeting next week is nailed on… That said, with the unemployment rate also increasing and wage growth easing, we remain convinced that the Bank will not need to raise its policy rate above five percent.”
Benjamin Reitzes, BMO Economics: “This is a solid report overall even if it has some blemishes. The big headline increase and ongoing strength in the labor market likely tilts the balance toward another 25 basis-point hike at next week’s Bank of Canada policy announcement.”
Nathan Janzen, RBC Economics: “The June labor market data was mixed but shouldn’t be enough to prevent the Bank of Canada from following through with a second straight 25 basis-point interest rate hike… Economic growth data and ‘sticky’ core inflation readings haven’t been soft enough to derail those plans.”
Charles St-Arnaud, Alberta Central: “We believe the Bank of Canada will hike its policy rate by 25 basis points at next week’s meeting, bringing it to five percent, and then pause for the rest of the year… The continued resilience of the labor market, the strength in the economy, and sticky inflation are the main reasons supporting another rate hike.”
Based on economists’ assessments of the labor market and the need to address inflationary pressures post-COVID, expectations for another Bank of Canada rate increase on July 12, 2023, are high. While signs of loosening labor market conditions are apparent, the bank aims to strike a balance between managing inflation and avoiding a recession. As the central bank’s meeting approaches, all eyes will be on the decision to gauge the potential impact on the Canadian economy and financial markets.