Canada’s jobs report and what it means for Bank of Canada rate cuts

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Statistics Canada released employment data that showed the economy added 90,000 jobs in April — it’s strongest increase in 15 months — rebounding from a loss of 2,200 in March and beating analyst estimates for a gain of 20,000 positions.

Despite the increase, the unemployment rate held at 6.1 per cent, that national data agency said as the number of people looking for work continued to rise as Canada’s swelling population expands the workforce.

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

July, not June: Capital Economics

The latest jobs data give the Bank of Canada breathing room on when to cut interest rates, with economists at London-based Capital saying that a July cut appears more likely than one in June.

“The big picture is that the resilience of the labour market affords the bank more time to wait to ensure that the recent run of favourable CPI (consumer price index) data will be sustained,” Stephen Brown, deputy chief North America economist, said in a note.

There is only one inflation release before the Bank of Canada’s next interest rate announcement on June 5, but three consumer price index reports prior to the bank’s July 24 meeting.

“That makes it more likely that the bank will wait until the late July meeting to cut interest rates,” Brown said.

The economist also noted that March’s “surprise” loss of 2,200 positions was likely a “blip” and the economics house now thinks the latest jobs data could provide a boost to gross domestic product.

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Sticking with June: Desjardins

“We’re sticking with our call that the central bank cuts rates in June,” Royce Mendes, managing director and head of macro strategy for Desjardins Group, said in a note.

While the jobs gains were attention-getting, the labour market is showing signs of “slack,” Mendes said, as Canada’s population aged 15 and over increased by 112,000, in April, outstripping the gains.

Year-over-year, the population grew 3.3 per cent compared with employment growth of 1.9 per cent in the 15 and up age group, Statistics Canada said.

“We’re not convinced that this report will materially change the Bank of Canada’s assessment of the labour market,” Mendes said.

Still, with the jobs numbers rebounding, the inflation report, out on May 21, will be that much more important to the Bank of Canada, he said.

‘In a position to cut in June’: Royal Bank of Canada

Canada’s jobs market has yet to make a case for the Bank of Canada to act with urgency on rate cuts, Nathan Janzen, assistant chief economist at the Royal Bank of Canada, said in a note.

“Labour markets have softened enough to lower inflation risks going forward and justify a pivot to interest rate cuts from the Bank of Canada,” Janzen said. “But the bottom still hasn’t fallen out,” Janzen said.

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For now, RBC is sticking with a June cut.

“Our own base-case assumption is that the BoC will be in a position to cut the overnight rate in June,” Janzen said, noting that signs of weakness in the jobs market are building.

For example, wage growth slowed to 4.7 per cent from 5.1 per cent, while the labour market continues to lag the increase in Canada’s population. There is also evidence that it is taking people longer to find work, Janzen said.

But the strong headline number can’t be completely discounted and means the inflation report for April needs to deliver continued evidence of easing price pressures, the economist said.

June cut in the cards: Alberta Central

The April jobs rebound isn’t likely to hold much “sway” with central bank officials, Alberta Central chief economist Charles St-Arnaud said in a note Friday.

St-Arnaud, who is still predicting a cut at the June meeting, said the Bank of Canada’s focus is squarely on inflation.

Despite an uptick to 2.9 per cent in March from 2.8 per cent in February, the number of goods and services where prices are rising at more than two per cent year over year continues to shrink, while core inflation “is returning below three per cent” — the top end of the Bank of Canada’s inflation target range.

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That, he said, means a June cut is still on the table. One thing that could derail the central bank: a “positive surprise” on inflation.