Previewing the Canada Jobs Report: Unemployment Rate on the Rise

The Canadian Labor Force Survey report is scheduled for release at 12:30 GMT on Friday by Statistics Canada. It is likely that the Canadian labor market will continue to show weakness, supporting the Bank of Canada’s decision to maintain interest rates. Despite raising rates in June and July, the Bank of Canada kept the key interest rate at 5.0% during its September policy meeting. However, the central bank remains open to further tightening if inflationary pressures persist, although it expressed concern about the economic outlook due to the loosening labor market conditions.

According to Statistics Canada, the economy has experienced a decline in employment in two of the last three months. In addition, the Canadian Gross Domestic Product (GDP) unexpectedly shrank by 0.2% in the second quarter and remained stagnant in July. These figures suggest that the economy may already be in a slight recession. Meanwhile, the annual inflation rate in North America rose higher than expected to 3.3% in July, with the Core Consumer Price Index (CPI) remaining stubbornly high at 3.2%.

The focus now shifts to the upcoming Canadian labor market report, with particular attention on wage inflation data, which could significantly impact the Bank of Canada’s future policy decisions. The bank stated in its policy statement that while the tightness in the Canadian labor market has been gradually easing, wage growth is still around 4% to 5%.

Economists predict that Canada’s Unemployment Rate will slightly increase to 5.6% in August, compared to the rise to 5.5% in July. It is expected that the economy will add 15,000 jobs in August after unexpectedly losing 6,400 jobs in July. The Bank of Canada closely monitors Average Hourly Wages, which increased by 5.0% in July compared to the previous year.

TD Securities analysts anticipate the addition of 20,000 jobs in August, slightly below the 6-month trend and insufficient to keep up with population growth. A rebound in construction is expected to drive the headline print as hiring intentions fade. If the unemployment rate remains stable at 5.5% and wage growth softens (-0.6pp to 4.4%), the report is expected to have a dovish tone.