Achi news desk-
OTTAWA –
Canada’s unemployment rate jumped to 6.1 percent in March as more people looked for work and job growth slowed — confirming expectations of an interest rate cut in June.
Statistics Canada’s labor force survey on Friday shows the jobless rate was up from 5.8 per cent in February, marking the largest monthly increase in the jobless rate since the summer of 2022.
Employment was little changed last month, with the economy losing 2,200 jobs, after a small increase over recent months.
“The cracks that had been emerging within the Canadian labor market suddenly became much wider,” CIBC executive director of economics Andrew Grantham wrote in a client note.
The Marchjobs report is the last piece of major economic data the Bank of Canada must consider before its next interest rate decision on Wednesday.
Investors will be looking for any hints from the central bank about when it plans to start lowering its key rate, which is currently five percent.
Economists had been betting that the Bank of Canada would deliver the first rate cut in June or July, however, expectations are now leaning more towards June.
Nathan Janzen, RBC’s assistant chief economist, says the jobs data throws some cold water on the strong economic growth figures from early 2024.
“For (the BoC), it will be another reason to take the very strong GDP numbers we’ve had in early 2024 with a grain of salt,” he said.
Statistics Canada reported last week that real gross domestic product increased by 0.6 percent in January. The agency added that it expects growth to continue in February with a preliminary estimate pointing to an increase of 0.4 percent.
Janzen says other indicators such as rising business bankruptcies and fewer job vacancies suggest the economy is feeling the bite of higher interest rates.
The latest Canadian jobs data is in stark contrast to employment figures south of the border also released on Friday as the US economy remains a global outlier.
US employers added a staggering 303,000 workers to their payrolls in March, bolstering hopes that the economy can beat inflation without succumbing to recession in the face of high interest rates.
Meanwhile, Canada’s rising unemployment comes as high borrowing costs weigh on businesses and strong population growth continues to add to the country’s labor supply.
The unemployment rate was up one percentage point compared to a year ago.
“The problem is that we’ve had a slight drop in employment at a time when the population is still increasing, very, very quickly. And that was the main cause for concern in this report,” Grantham later said in an interview.
Statistics Canada says the increase in the jobless rate was driven by an increase of 60,000 people looking for work or being laid off.
The total number of unemployed people in the country was 1.3 million last month, an increase of almost 250,000 compared to a year ago.
Young people in particular are feeling the cold in the labor market. Employment among 15 to 24-year-olds fell by 28,000 in March and the jobless rate for the group rose to 12.6 per cent, the highest it has been since September 2016 outside of the 2020 and 2021 pandemic years.
An RBC report released in January said that new students and graduates, rather than newcomers to Canada, are driving the increase in unemployment in the country.
“Close to half of the year-over-year increase in the total number of unemployed people in Canada… were students who were not in the job market and have started looking for work,” Janzen said.
Friday’s report shows job losses last month were concentrated in accommodation and food services, followed by wholesale and retail trade and professional, scientific and technical services.
Meanwhile, employment increased in four industries, led by healthcare and social support.
Despite weaker labor market conditions, wage growth continued to grow rapidly, with average hourly wages rising by 5.1 percent annually.
Although economists are preparing for rate cuts in the coming months, the jobs market is expected to remain weak for a while.
Janzen expects the unemployment rate to peak at 6.5 percent in the third quarter of the year, noting that interest rates will continue to limit growth until they return to normal levels.
“It’s not so much the Bank of Canada, when they start cutting interest rates, (it will) be like stepping on the gas and helping the economy accelerate,” he said. “It’s starting to ease off the brakes.”
This report was first published by The Canadian Press on April 5, 2024.
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