As labour force shrinks, Canada sheds jobs for the second month

Canadian employment unexpectedly fell for a second straight month in July as workers dropped out of the labour force, adding to evidence the economy is losing momentum.

The country shed 30,600 jobs last month, Statistics Canada reported Friday in Ottawa, a surprise negative reading compared to the 15,000 gain anticipated by economists. Still, the unemployment rate held at a record low 4.9 per cent as the labour force shrank by a similar amount.

The employment drop last month adds to a loss of 43,200 jobs in June, marking a sudden stop to Canada's yearlong labour market boom. The country created more than 1 million jobs in the 12 months through May, before the two-month slump began.

The question now is whether the slowdown is being driven by labour supply factors or by a weakness in underlying demand brought on by the initial impact of higher borrowing costs. The mix is important to the Bank of Canada, which has been tightening policy aggressively in part because of worries that demand for labour has far outpaced supply.

The data, however, continue to point to an extremely tight labour force, even with the fall in employment. Labour force participation rates fell for a second month, dropping to 64.7 per cent from as high as 65.4 per cent in March. The number of Canadians in the labour force fell by 27,000, mostly women, adding to the 97,500 drop in June.

The average hourly wage rate was up 5.2 per cent from a year ago, unchanged from June and matching the fastest increase in records dating to 1997, outside of the pandemic.

A 0.5 per cent decline in hours worked in July, however, suggests some potential weakness on the demand side.

“Canada's job market is clearly losing momentum in a hurry, likely due to both a marked cooling in the broader economy but also because of a lack of available workers,” Doug Porter, chief economist at Bank of Montreal, said in a report to investors.

Swaps trading shows investors are anticipating the country's central bank will hike its policy interest rate by another full percentage point by the end of this year. Since March, the Bank of Canada has hiked its benchmark overnight rate to 2.5 per cent, from 0.25 per cent.