The Canadian labour market rebounded in April by adding a whopping number of new positions, a result that potentially muddies the picture as the Bank of Canada considers whether to lower interest rates in June.
The economy added roughly 90,000 jobs in April after a slight decline in March, Statistics Canada said Friday in a report. Financial analysts were expecting a gain of 20,000 positions. It was the strongest month of job creation since January, 2023.
Despite those gains, the unemployment rate held steady at 6.1 per cent, because the country’s population is growing at a feverish pace. The jobless rate has risen by more than a percentage point since the summer of 2022.
The results suggest employers are willing and able to take on more workers, despite the financial pressures resulting from higher interest rates.
Friday’s report was the final Labour Force Survey before the Bank of Canada’s next rate decision on June 5. Analysts are roughly split over whether the central bank will cut rates then, or wait until late July to make the first move.
“Today’s showy headline jobs increase will give the Bank of Canada some pause, since it reinforces the point that the economy is clearly not rolling over,” Bank of Montreal chief economist Doug Porter said in a client note. “Still, the reality is that economic slack is still rising,” he added, pointing to a higher number of unemployed people.
In April, employers mostly added part-time positions, which rose by about 50,000. The private sector accounted for most of the employment growth, although there were strong gains in the public sector, as well.
The total number of hours worked across the economy jumped by 0.8 per cent in April, which portends well for growth in the second quarter.
Still, there are ample signs of a weakening economy. As of April, there were 1.3 million unemployed people in Canada, an increase of 256,000 or 23.7 per cent from a year earlier.
The Bank of Canada will be encouraged that wage growth – an upside risk for inflation – is calming down. Average hourly wages grew at an annual pace of 4.7 per cent in April, down from 5.1 per cent in March.
After Friday’s report, investors pared back their bets for an imminent rate cut. Markets are now pricing in a roughly 50-50 chance that the Bank of Canada trims its policy rate by a quarter-point next month, according to Refinitiv Eikon data. In recent days, those odds were higher than 70 per cent.
Over a series of moves, the Bank of Canada hiked its benchmark interest rate to 5 per cent from pandemic lows of 0.25 per cent, a process that started in early 2022. Through higher interest rates, the central bank is trying to curb demand and bring inflation back to its 2-per-cent target.
Tighter monetary policy is having wide-ranging effects on the economy, including higher debt-servicing costs for governments and households. Many homeowners are facing the prospect of sharply higher payments when they renew their mortgages in the coming years, the extent of which depends on the path of interest rates.
Whether the Bank of Canada cuts rates in June or July, it is likely to do so before the Federal Reserve. The U.S. economy is frequently posting strong results, and thus investors don’t expect the Fed to cut before November. This divergent path for interest rates would put downward pressure on the Canadian dollar – a helpful scenario for exporters, but adding to costs for imported goods.
Statscan will release its next inflation report on May 21. Annual consumer price index growth has slowed to just under 3 per cent. Bank of Canada officials have said they’re encouraged by this progress, but want to ensure they don’t cut rates too early and cause prices to flare up again.
“The unemployment rate has risen more in Canada than in most other advanced economies in the wake of higher interest rates, and wage growth is showing further signs of moderating,” Nathan Janzen, assistant chief economist at Royal Bank of Canada, said in a client 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 – but the bottom also still hasn’t fallen out in a way that is forcing the central bank to act urgently.”