wage-ring on more cuts ahead

Statistics Canada released another update of its Labour Force Survey data and the results for June were once again indicative of an underwhelming labour market that’s bogged down by restrictive monetary policy.

First, and most notably, Canada shed jobs last month. And while the number of jobs lost was quite small (1,400), it happened alongside another month of robust population growth (Canada added 98,700 working age people in June). These two metrics combined to push up the nation’s unemployment rate to 6.4%, its highest level since January 2022. Additionally, the job losses were concentrated to full-time employment last month (-3,400), whereas part-time employment grew by 1,900), suggesting further weakness in hiring.

The one noteworthy outlier in the June data came in the form of wages. Average hourly wages increased 5.4% year-over-year in June, which was up from May (5.1%), as it appeared at first glance that wage growth accelerated last month. High wage growth has been of particular concern to the Bank of Canada in its efforts to bring inflation back to its ultimate target of 2%, and persistent wage growth above 5% is not what the Bank wants to see.

The good news for the Bank, however, is that the June data is affected, in part, by base-year effects. Average wages actually fell in June relative to May, but that drop was less than the May-to-June decline last year, which is what pushed up the annual change last month. If we look at some shorter term measures, we can clearly see that wage growth has been decelerating of late with an increase of just 0.3% over the past three months, and 1.3% over the past six months. On an annualized basis, both the past three month (1.1%) and six month (2.7%) measures suggest wage growth has been much more subdued of late.

Once again, the June data point to a labour market that continues to be burdened by high interest rates. Unemployment continues to grow while total employment has been fluctuating of late, though the majority of hiring has been in the form of part-time employment. As it stands now, the latest jobs report reinforces our belief that the Bank will cut a further 25 points at their July 24th meeting. Though with last month’s CPI data showing inflation ticked back up in May to 2.9%, all eyes will now turn to the June inflation reading, due out on July 16th.