Canada’s labour market supports continuous easing from the BoC

The Canadian economy failed to add jobs in March, with employment essentially flatlining on the month.

This was largely due to the amount of lay-offs amongst young workers (-28,000), which was broadly offset by an increase in employment amongst core-aged men (+20,000) and little change amongst core-aged women. Nevertheless, across all groupings, the pace of employment failed to keep up with overall population growth. While the overall participation rate held steady at 65.3%, the unemployment rate rose 0.3pp to 6.1%, its highest level since November 2017. Again this can largely be attributed to youth workers, where the unemployment rate rose a percentage point to 12.6%, but this doesn’t explain the full story. The unemployment rate of core-aged workers also rose 0.2pp in March, whilst the proportion of those unemployed in February and March increased by 4.4pp from last year to 64.9%, highlighting that the rate of structural unemployment is also increasing.

Signs of economic weakness were also visible across industries. Job losses were most pronounced in consumer-facing roles, with accommodation and food services and wholesale and retail trade cutting 20k jobs a piece. Furthermore, IT, culture, and recreation also shed 10k jobs; outcomes in line with the latest BoC surveys that suggested continued stagnation in economic growth.

A picture paints a thousand words: Canada’s unemployment rate says all you need to know about how the economy is performing

While today’s jobs data isn’t dire enough for the BoC to renege on its forward guidance and cut rates next week, it is weak enough to confirm our view that June’s decision to cut will be the first of a sequence.

Not only did the labour market fail to add jobs in March, but the “hidden slack” that we had been warning of is starting to become more visible as those under 25 have begun to enter the job market en masse.

Ultimately, today’s data confirms that the Canadian economy isn’t as strong as official GDP data and the BoC are making out, and that substantial rate cuts are needed to avoid a more sinister unwind.

As markets come around to this inevitability and start to price increasingly diverging paths for the BoC and Fed, widening rate differentials should lead USDCAD up to our 3-month forecast of 1.38. The currency pair is already cutting in this direction, breaking through the key resistance level of 1.3619 that had proven a cap for the pair since December following today’s release.

USDCAD breaks higher to hit a fresh four-month high as markets finally begin to price diverging paths for the Fed and BoC

Author: 

Simon Harvey, Head of FX Analysis

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