The Canadian economy recorded a negative surprise in April when the unemployment rate jumped to 6.9%, the highest level in six months. Official data showed a net loss of 17,700 jobs, far from analysts’ expectations of an addition of 15,000 new positions.
These job losses are seen as very critical because they are entirely concentrated in the full-time sector, which shrank by 46,700 positions. Growth in the part-time sector of 29,000 positions failed to offset the decline, thus indicating a deteriorating quality of the labor market.
External factors such as US tariffs, uncertainty over free trade agreements, and the impact of price increases due to the Iran war are the main sources of pressure. The manufacturing sector, which is most exposed to trade issues, recorded the largest job losses of 26,800 positions in April.
The Bank of Canada is closely monitoring signs of excess capacity in the labour market and hourly wage growth is starting to slow to 4.8%. The data suggests that inflationary pressures may be easing, but it also reflects weakness in domestic labour demand.
Financial markets responded by depreciating the Canadian dollar (Loonie) by 0.6% against the US dollar. Despite the lacklustre economic data, markets are still pricing in a 25 basis point interest rate hike by the Bank of Canada scheduled for October.
