Canada: The labor market is losing ground, but interest rates are expected to continue to rise

by time news

The Canadian economy continues to contract and lost 39,700 jobs (net) in August – according to a report in the Reuters news agency. This is the third month in a row that the number of jobs in the Canadian economy is decreasing, which may indicate that the recent interest rate hikes are starting to cool the country’s economy.

However, despite the signs of a certain cooling down, Canadian economists estimated that the central bank will continue to raise interest rates at this stage.

The contraction of the Canadian economy is surprising, as forecasts were for an addition of 15 thousand jobs in August. The unemployment rate in the country rose from 4.9% in July to 5.4% – above the forecasts for unemployment of 5%. “The numbers are a reasonable indication of a slowdown in the economy,” Andrew Kelvin, chief strategist for Canada at TD Securities, told Reuters.

“When you look at the increase in the unemployment rate, there seems to be some slack in the labor market, although it will be a slow process,” he added.

Canada lost 113,500 jobs (net) in the past three months. In June and July most of these losses were attributed to people leaving the labor force, but this trend reversed in August when 66,200 people joined the labor force.

“We’ve never seen a three-month streak of job losses outside of a recession,” said Royce Mendes, an analyst at the Desjardins Group firm, adding that “the deterioration of the labor market appears to be happening faster than expected.”

One of the problems troubling the central bank of Canada is the increase in wages which continued to accelerate in August and recorded an increase of 5.6% following the 5.4% increase recorded in July. More people said they plan to leave their current job in the next 12 months, citing pay and benefits as the main reason.

Canadian economists estimated that “the gallop of wages upwards may leave the Canadian Bank on the map of the planned interest rate hikes”. “I think the bank will focus on the wages side – the acceleration there that continues,” said Derek Holt, vice president of capital markets economics at Scotiabank.

However, the markets are now betting on a 25 basis point increase in the Bank of Canada’s next interest rate decision and not a 50 basis point increase, as they had previously bet on.

The Bank of Canada raised interest rates to 3.25% on Wednesday, the highest level in 14 years, leaving the door open for more rate hikes amid rising inflation.

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