MNI: Canada Unemployment Rises A Third Straight Month In July

Canada's jobless rate climbed a third consecutive month in July, the longest run-up since the pandemic as hiring unexpectedly slipped, while wage gains accelerated further into a range the central bank deems at odds with its inflation fight.

The jobless rate climbed a notch to 5.5% according to Statistics Canada's report Friday from Ottawa, the highest since January 2022, though still within sight of the record low 4.9% reached over the last year. Hiring fell for the second time in three months with a decline of 6,400, following a gain of 59,900 in June and a May drop of 17,300. Both July headline figures missed economist forecasts the unemployment rate would remain unchanged and jobs would gain 25,000. 

The labor market remains tight with employment still up a net 435,000 jobs from a year ago, and wage growth accelerating in July to a 5% pace from 4.2% in June. 

The softening trend for the jobless rate should provide the Bank of Canada some comfort that its 10 interest-rate hikes are working to re-balance an economy pushing its capacity limits. Today's report is the last one officials see before the next rate meeting in early September, where most economists see the key rate remaining the highest since 2001 at 5%. Economists see the risk of a hike and officials are worried elevated wage gains may keep inflation from returning to their 2% target.

Hours worked, sometimes viewed as a proxy for GDP, were little changed on the month and 2.1% higher than a year ago. Canada’s economy grew at a 3.1% annualized pace in Q1 though a flash estimate from StatsCan suggest Q2 growth slowed to a 1% pace. Inflation has also slowed to 2.8% from a peak of 8.1% last year, though the Bank says it will remain around 3% for a while and not return to target until mid-2025.

The standard error in Statistics Canada’s job report is 30,700, meaning the specific job shift reported today isn’t significantly different from zero. Full-time employment rose 1,700 and part-time work fell by 8,100, and the overall decline was led by a 44,700 drop in construction. Executives have told MNI higher borrowing costs are making it harder to finance building projects even amid major demand for housing.

Judging the economy's tightness is complicated with the biggest influx of immigrants in decades boosting labor supply and creating more demand. Canadians have also racked up debts worth more than the nation's GDP, raising the risk that tight policy will do more than just cool demand.