What impact will the surge in April’s job numbers have on June interest rate cuts?

While the Canadian economy gained a startling 90,000 jobs last month, an interest-rate cut is still on the table for June, according to economists.

 

The jobs surge far exceeded forecasters’ expectations for a gain of 20,000 positions, and marked the largest employment increase in more than a year, according to the most recent data from Statistics Canada’s labour force survey.

 

But while the data is better than expected, “the numbers are not as good as they looked,” said Jim Stanford, economist and director of think tank Centre for Future Work.

 

“Over half of those 90,000 jobs were part-time positions, and that reverses a trend we’ve seen since the end of the pandemic lockdowns, which was a growing share of full-time work in overall employment,” he said.

 

BMO chief economist Douglas Porter said the increase in part-time positions might be a “sign of weakness rather than strength.”

 

“In other words, a lot of the new entrants would actually like a full-time job, but really all they can get is part-time,” Porter said.

 

April’s labour force survey comes as economists have been widely expecting the central bank to begin lowering its policy rate in June or July. The Bank of Canada has been particularly encouraged by progress made on inflation and has signalled that it’s inching closer to a rate cut.

 

But the latest employment numbers have made financial markets less certain a rate cut will materialize next month.

 

Stanford said the data won’t necessarily sway the central bank’s decision.

 

“These numbers shouldn’t change the bank’s judgment,” he said, adding that he’s “optimistic we will see rate cuts as soon as next month.”

 

“Employment is growing but inflation is still falling,” Stanford added.

 

Canada’s inflation rate was 2.9 per cent in March, within the central bank’s one to three per cent target range. Core measures of inflation, which strip out volatile prices, have also continued to edge down.

 

The Bank of Canada’s next interest rate decision is scheduled for June 5. Its key interest rate currently sits at five per cent, the highest it’s been since 2001.

 

And the labour force data still shows that higher interest rates have taken a toll on economic growth and the labour market, as the unemployment rate held steady at 6.1 per cent last month.

 

Immigration-fuelled population growth has outpaced job creation over the past year, which has pushed up the unemployment rate by a full percentage point.

 

Compared with a year ago, unemployment is up across all major demographic groups, with youth taking the largest hit, Statistics Canada said.

 

“Canada’s rapid population growth means we need this many jobs almost every month in order to simply keep up,” Stanford said.

BMO’s Porter says that while he “wouldn’t rule out” a rate cut in June, the report might give the Bank of Canada pause, noting the data is reinforcing the point that “the economy is clearly not rolling over.”

 

“The Bank of Canada could take away the message that there’s no real urgency to cut interest rates because the economy is holding on,” he said.

 

But Porter added the bank may choose to focus more heavily on longer-term trends, which suggest economic slack is rising.

 

Bank of Canada governor Tiff Macklem has generally emphasized trends over one particularly strong or weak economic report.

 

Porter said BMO still expects the first interest-rate cut in June, but added the move would require the upcoming inflation report to show significant progress.

 

With files from The Canadian Press.

This article was first reported by The Star