Canada’s labour market delivered a stronger-than-expected performance in July, adding 75,000 jobs and bringing the unemployment rate down to 6.4%, its lowest level in two years.
The increase was far above the 15,000-job gain economists had expected in a Reuters poll ahead of the release.
Job growth was split between full-time and part-time employment, with Ontario accounting for a particularly large share of the increase after adding 52,000 positions.
Statistics Canada said employment has now risen by 181,000 jobs since April and is 196,000 jobs higher than it was a year ago.
CIBC senior economist Andrew Grantham said the stronger figures were consistent with signs that the Canadian economy is gradually recovering.
However, he cautioned that there is still considerable slack in the economy and that the recovery would need to continue before concerns about potential Bank of Canada rate increases become more pressing.
Unemployment improves, but labour market still has room to recover
The unemployment rate has fallen by half a percentage point compared with a year earlier, as more people looking for work succeeded in finding employment.
Despite the improvement, economists remain cautious about declaring the labour market fully recovered.
RBC assistant chief economist Nathan Janzen said the labour market is “not yet strong”, pointing to an unemployment rate that remains above normal levels and slower wage growth.
Average hourly wages increased 2.8% year-on-year in July, down from 3.3% growth in June.
Janzen noted that employment conditions have nevertheless continued to improve despite significant uncertainty surrounding U.S. tariffs and higher energy prices.
Wholesale and retail lead July gains
The largest employment increase came from wholesale and retail trade, which added 21,000 positions in July.
Despite the monthly gain, the sector remains 50,000 jobs below its level from a year earlier.
Finance, insurance, real estate, rental and leasing added another 18,000 positions, while professional, scientific and technical services gained 17,000.
Not all sectors expanded.
Public administration employment fell by 15,000 jobs, while agriculture recorded a decline of 9,600 positions.
Rate hike still not on the immediate horizon
Desjardins managing director Royce Mendes said the latest figures suggest businesses are continuing to adapt to trade-related uncertainty.
However, he argued that the labour market still has a significant distance to go before returning to full health.
Mendes expects a Bank of Canada rate increase is unlikely before 2027, particularly as annual wage growth has slowed to a pace close to inflation.
The Bank of Canada kept its key policy rate unchanged at 2.25% for the sixth consecutive meeting in July.
Financial markets were also strongly positioned for another hold at the central bank’s next meeting on September 2, with LSEG Data & Analytics putting the probability of no change at approximately 96%.
Young workers see some improvement
The unemployment rate among young Canadians remained almost unchanged in July at 12.6%.
That figure is nevertheless 1.9 percentage points lower than a year earlier.
CIBC’s Grantham described the summer as a noticeably better period for young people seeking employment than the previous two years.
The July figures therefore provide encouraging evidence that Canada’s labour market is recovering, but economists continue to see the improvement as a process rather than a completed recovery. Slower wage growth, elevated unemployment and ongoing trade uncertainty remain important factors for the Bank of Canada as it assesses the next stage of monetary policy.
