Canada’s surprise jobs loss: What economists say

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Canada’s eight-month streak of job gains ended in May with a loss of 17,300 positions, Statistics Canada said.

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The consensus estimate was for an increase of 21,300 positions in May.

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The unemployment rate rose to 5.2 per cent from 5 per cent, the first increase since August 2022.

Statistics Canada said on June 9 the overall employment picture was “virtually unchanged” because a drop in 77,000 youth jobs was offset by a 66,000 gain in jobs for workers aged 25 to 54.

Average hourly wages rose 5.1 per cent year over year, well above inflation, which came in at 4.4 per cent in April, an unwelcome sign of resilience for the Bank of Canada.

Economists though do see signs of softening in the data, including weakness in total employment and a monthly drop in hours worked.

The 32,700 drop in full-time positions is another sign of “weakness under the hood,” said TD economist James Orlando.

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The labour report comes just two days after the Bank of Canada increased interest rates to 4.75 per cent, citing stubbornly high inflation and a stronger-than-expected economy and jobs market.

Here’s what economists think about the jobs data and where the Bank of Canada might go from here.

Charles St-Arnaud, Alberta Central

“A robust labour market and strong wage growth remain a challenge for the Bank of Canada. While the BoC will welcome the higher unemployment rate, it remains historically low and will need to rise further to create some slack in the labour market. Moreover, wage growth remains strong and disconnected from weak labour productivity.

“The continued resilience of the labour market, the strength in the economy and the inflation stickiness (caused) the BoC to hike its policy rate this week. However, the BoC made it clear that the central bank will choose inflation in the tug-of-war between fighting inflation and avoiding a recession. Whether the BoC hikes further depends mainly on inflation and whether it remains sticky or shows signs of moderation. The risks are tilted towards another hike before the end of the year.”

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Here’s what economists think about the jobs data and where they think the Bank of Canada will go from here.

James Orlando, TD Bank

“Today’s negative print ends a streak of eight months of job gains. While most of the job losses were concentrated in the younger age cohort (15-24 year-olds), the drop in full-time jobs and reduction in hours worked point to weakness under the hood. The question is now: Is this a one off or the start of a trend? The labour market had been defying gravity for months and was bound for some giveback. Our forecast implies that the massive job gains of prior months are behind us, causing the unemployment rate to rise towards six per cent by the end of this year.

“The Bank of Canada couldn’t have seen this coming when it decided to surprise markets with a 25 basis point rate hike on Wednesday. It decided to hike because economic/labour market growth was exhibiting stronger momentum than the Bank was anticipating. While one weak labour market report doesn’t make a trend, the BoC will be closely watching to see if other cracks start to form.”

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David Rosenberg, Rosenberg Research

“Not since April-May 2021 have we seen back-to-back declines in full-time positions — the critical ingredient for incomes, spending and confidence. Interestingly, this loss was centred among self-employment, which cratered 39,600 (down in three of the past four months) in what was the worst drubbing for the entrepreneurial class since April 2020.

“In a sign of inconsistency in the data beyond just the part-time job increase alongside reduced youth jobs, we also saw the best performing sector being accommodation and food services (+10,600, the best showing in four months) which typically employs young people. Go figure. The BoC thinks consumer spending is behaving admirably, and yet retailers/wholesalers would seem to disagree with that notion, as this sector laid off a net 12,900 and by 79,700 (-2.6 per cent) over the past year. The Bank of Canada also seems smug with a view that the rates sensitive sectors are robust, and yet we see that the financial services sector shed 3,300 jobs in May — negative readings in this area in four of the past five months. What is more credit sensitive than construction? And this space was basically flat last month and down 12,700 since January. Thanks for the analysis, Tiff! Another anomaly was the 9,700 drop in transportation/warehousing alongside the 12,900 run-up in manufacturing — since the two are joined at the hip via the export sector (best number for the factory sector since last June).

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“As if the headline jobs slump wasn’t bad enough, the workweek was sliced 0.4 per cent — which means that in a holistic sense, taking bodies and hours in tandem, it’s as if the economy lost 94,000 positions last month.”

Benjamin Reitzes, Bank of Montreal

“The headline was clearly weak, but the details weren’t nearly as soft. Still, while all the losses were among youth, the higher jobless rate suggests the labour market loosened a touch. We’ll still get another jobs report before the July meeting, so the BoC will likely take this mixed report in stride and wait for more data.”

Olivia Cross, Capital Economics

“The increase in the unemployment rate to 5.2 per cent in May will probably not prevent the Bank of Canada from raising interest rates again at its July meeting, as the weakness was partly a statistical effect related to reduced summer hiring of younger workers, but it reinforces our view that the Bank will not need to raise rates beyond five per cent.”

• Email: gmvsuhanic@postmedia.com | Twitter: GSuhanic

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