Jobless rate rises to 6.4% in June. Here’s how the Bank of Canada might react

The national unemployment rate rose to 6.4 per cent in June amid job losses in the month, Statistics Canada said Friday.

Canadian employers collectively shed 1,400 jobs in the month, the agency said Friday.

June’s labour force survey results compare to a jobless rate of 6.2 per cent in May, when the economy added 27,000 positions.

The transportation and warehousing sectors, as well as public administration, led declines in jobs last month, according to StatCan. The accommodation and food services industries and agricultural sector helped to offset losses.

Full-time employment dipped by 3,400 positions in the month compared with a gain of 1,900 part-time jobs.

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Young Canadians have been hit particularly hard in the cooling labour market. The unemployment rate for youth (aged 15-24) rose to 13.5 per cent in June, the highest level since September 2014, excluding the early COVID-19 pandemic.

Students are struggling to find jobs in the summer break between classes, StatCan noted. The employment rate for returning students (those who studied full-time in March and intend to return in the fall) was 46.8 per cent in June, the lowest level seen since 1998, again not including the pandemic.

June marks the second month of job losses so far in 2024. While the unemployment rate has climbed from a record low of 4.9 per cent two years ago, the jobless rate has largely risen as job gains fail to keep pace with Canada’s growing population.

Compared with this time last year, overall employment is up by 1.7 per cent, or 343,000 positions, StatCan said.

The Bank of Canada is looking for cooling in the labour market, particularly in wage growth, as it weighs when it can deliver further interest rate cuts.

Average hourly wages accelerated to 5.4 per cent annually in June from 5.1 per cent in May, StatCan said. TD Bank senior economist Leslie Preston said in a note to clients Friday that wages are showing more growth this month due to favourable comparisons to June of last year and are “expected to peter out next month.”

CIBC senior economist Andrew Grantham also said in a note that he expects wage growth will ease later in the year.

He said that despite a robust May inflation report, cooling jobs figures “should give the Bank of Canada comfort that inflation will converge to its two per cent target over time.” Grantham maintained CIBC’s call for a second rate cut on July 24, though he cautioned that the upcoming June inflation report will be the deciding factor.

Money markets increased their bets for a rate cut this month to 55 per cent from just around 50 per cent before the jobs report, according to Reuters.

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RSM economist Tu Nguyen said in a release Friday that employers are clearly feeling “squeezed” by high interest rates, holding them back from expanding payrolls.

Hiring will remain slow until the end of the year, she projected, but borrowing costs should continue to fall in order to stoke that recovery.

“June’s job report underscores the weakness of the labour market and calls for a 25 basis point rate cut this month, bringing the policy rate down to 4.5 per cent. The interest rate needs to fall to revive the economy,” Nguyen said.

The labour market is indeed showing signs of “softening,” Preston said, which likely helped the Bank of Canada feel confident delivering its first interest rate cut in more than four years last month.

As for what comes at the central bank’s next decision later this month, she said upcoming data releases for inflation and the Bank of Canada’s own Business Outlook Survey could tip the scales towards a rate hold or another cut.

“In either case, Canada’s economy is not falling off a cliff and we expect rate cuts will be gradual over the remainder of the year,” she said.

Elsewhere on Friday, the latest employment data out of the United States also pointed to signs of slowing.

U.S. job growth slowed marginally in June, but a rise in the unemployment rate to more than a 2.5-year high of 4.1 per cent and moderation in wage gains pointed to an easing of labuor market conditions that keeps the Federal Reserve on track to start cutting interest rates this year.

— with files from Reuters