News & Analysis

Canada lost 43,200 net jobs in June, a substantial surprise considering economists expected the economy to add 22,500 new jobs, which would have been a milder but still positive increase compared to last month’s 39,800 gain. Only two of the 16 economists surveyed by Bloomberg thought the number of jobs would fall, and only one of them was close. The range of estimates spanned from -48,100 to +45,000.

Despite the job losses, the unemployment rate fell to a new all-time low of 4.9% as a result of fewer people looking for jobs, as evidenced by the labour force participation rate falling to 64.9%. That lowered the employment to population ratio by two ticks to 61.7%.

The real story from today’s report was the change in jobs by age group: job market conditions were virtually unchanged for youth (-11k) and core-aged workers (+20k), with most of the job losses coming from the 55-plus age group (-51k), for whom employment fell by 1.2% from last month. Statistics Canada reported that the dip in labour force participation wasn’t because of an increase in discouraged workers, so it appears that today’s data was primarily the result of rising retirements among older Canadians who no longer have to work out of necessity. This signals to us that labour demand remains strong, which is further evidenced by the surge in wage growth for permanent employees from 4.5% last month to 5.6%.

Given that today’s net employment losses did not reflect a reduction in labour demand, the Bank of Canada will be hard-pressed to use it as an excuse to deliver less than 75bps at its next meeting on Wednesday. As this was the final piece of major Canadian data ahead of the meeting, we are maintaining our call for 75bps next week.

Similarly to last month, the market reaction was once again overshadowed by the massive job beat in US payrolls, which was released at the exact same time as the Canadian jobs report. The loonie whipped around following the release, with far more volatility than usual. After an initial USD rally that saw the exchange rate breach the 1.30 handle, the loonie came full circle, retracing back to the high 1.29 handle. North American equity futures fell, with S&P 500 futures down 0.5% and TSX futures down 0.2% from yesterday. Meanwhile, bonds sold off with yields up 6-8 bps in the US and up 4-5bps in Canada, resulting in a slight narrowing of Canada’s positive front-end rate differential. Given the dip in equities and the USD-favourable change in rates, the FX market appears to have overcorrected on its USDCAD pull-back.

Canada’s employment and participation rates pull back from pre-pandemic levels as more Canadians aged 55 and up decide to retire


Jay Zhao-Murray, FX Market Analyst


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