The latest labour market report from Statistics Canada shows that the country’s unemployment rate has risen to 6.6%, a significant increase from previous months. This trend is causing concern among economists, who are predicting further interest rate cuts by the Bank of Canada.
Economic Outlook
According to various economists, the rising unemployment rate and slowing wage growth will lead to more rate cuts by the Bank of Canada. Nathan Janzen, an economist at Royal Bank of Canada, expects the central bank to cut rates again in the upcoming meetings, including the remaining two this year. "This job market report suggests more rate cuts will come," he said.
Cooling Job Market
Tu Nguyen, an economist at tax consultancy RSM Canada LLP, pointed out that the August labour survey data indicate a cooling job market. The lack of hiring and employment increases in sectors such as health care, education, and social services is concerning, Nguyen said. He also highlighted the five per cent increase in wage growth, which is an area of concern for the Bank of Canada.
Layoffs on the Rise
Canada’s rate of layoffs has increased by more than 20% from a year ago, as the jobs market continues to weaken, according to Nathan Janzen. The economist believes that this trend will confirm that inflation is continuing to decelerate, given the rising jobless rate and slumping gross domestic product per capita.
Interest Rates in Question
Economists at National Bank of Canada, Matthieu Arseneau and Alexandra Ducharme, believe that interest rates are currently "far too restrictive to stabilize" a rapidly deteriorating jobs market. They pointed out that excluding the pandemic, the last time the unemployment rate stood at 6.6% was May 2017, when the Bank of Canada benchmark lending rate was 0.5%. The economists expect the job data to result in a seven per cent unemployment rate and recommend that the Bank of Canada lower rates to 2.5 to three per cent as soon as possible.
Economist Quotes
- "The data in (the) August labour survey paint a consistent picture of a cooling job market." – Tu Nguyen, RSM Canada LLP
- "Much of the unemployment rate increases to date have come from longer job searches for new labour market entrants (particularly students), but layoffs are also rising under the surface." – Nathan Janzen, Royal Bank of Canada
- "People trying to enter the job market for the first time — young people and new arrivals — are the main victims of Canada’s weak hiring climate." – Matthieu Arseneau and Alexandra Ducharme, National Bank of Canada
Impact on Interest Rates
The rising unemployment rate and slowing wage growth will likely lead to more interest rate cuts by the Bank of Canada. Economists expect the central bank to cut rates again in the upcoming meetings, including the remaining two this year.
Conclusion
Canada’s unemployment rate has risen to 6.6%, causing concern among economists who predict further interest rate cuts by the Bank of Canada. The cooling job market and rising layoffs are also indicating that inflation is continuing to decelerate. As a result, economists recommend that the Bank of Canada lower rates to 2.5 to three per cent as soon as possible.
Recommendations
- Nathan Janzen: Expect the Bank of Canada to cut interest rates again in the upcoming meetings.
- Tu Nguyen: Recommend more rate cuts will come due to the cooling job market and slowing wage growth.
- Matthieu Arseneau and Alexandra Ducharme: Believe that interest rates are currently "far too restrictive" and recommend lowering rates to 2.5 to three per cent as soon as possible.
Sources
- Statistics Canada
- Royal Bank of Canada
- RSM Canada LLP
- National Bank of Canada