Canada’s unemployment rate fell to 5.2 percent, a modern low, but interest rates are guaranteed another big hike when Bank of Canada policymakers conclude their next round of deliberations on June 1.
Statistics of Canada Latest Monthly Survey of the Labor Market There have been no surprising results in the past few months. Employment changed little in April, as absences from illness and disability appeared to outpace employers’ willingness to maintain strong demand for goods and services. Working hours decreased by 1.9 percent from April, although the new level was still 1.3 percent higher in February 2020 than on the eve of the pandemic.
It is possible that the country’s labor market is pushing its limits after adding more than 400,000 workers in February and March, a volatile pace. In April, the Statistics Canada household survey implied that employers added 15,300 positions, a statistically insignificant change because it was smaller than the survey’s margin of error. The unemployment rate for workers aged 25 to 54 fell to 4.3 percent, the lowest since comparable data became available in 1976.
In fact, as Brandon Barnard, an economist at the hiring website, said, “slowing down was inevitable.”
The Bank of Canada concluded in April that demand outpaced supply, which contributed to the sharpest inflation in more than three decades. The central bank raised its benchmark rate by half a point in April, and Governor Tiff McCalem indicated last month that he and his representative would do so again in June. The policy rate is currently one per cent, as against 0.25 per cent at the beginning of the year.
Statistics Canada said that the average hourly wage increased by 3.3 percent since April 2021, strong by recent historical standards, but still well below inflation, as the Consumer Price Index rose by nearly seven percent over the same period. happened.
“Many indicators point to a shrinking labor pool and a warmer market, with not much room to expand further,” said Tu Nguyen, an economist at RSM Canada LLP, an accounting firm. “The tight job market has put pressure on the Bank of Canada to raise interest rates further, which are expected to reach two percent by the end of the summer, a much faster pace than previously expected.”
The labor market is tight, but not yet sufficiently long enough to dampen the number of unemployed people, as about 224,000 people were unemployed for more than 27 weeks in April, compared to about 180,000 at the start of the pandemic. This is a concern because research shows that the more time people spend at the edge of the economy, the more difficult it becomes for them to find a good job. Long-term unemployment accounts for about 20 per cent of total unemployment since January, up from 15.6 per cent in February 2020.
Royce Mendes, head of macro strategy at Desjardins Group, flagged the decline in employment in goods-producing industries as another red flag. The sideways nature of the headline numbers “could be an early sign that rate hikes are causing more pain for the Canadian economy than it is for the US south of the border,” where employers Added some 428,000 posts last monthleaving the unemployment rate unchanged at 3.6 percent.
Still, that won’t stop the Bank of Canada from raising borrowing costs, as its forecast sees inflation well past its two-percent target over the next year. Macklem has said repeatedly in recent weeks that he is ready to raise the benchmark rate above three percent if it has to do so to relieve price pressure.
“The economy is still hot by most measures,” Mendes said in a note.
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