By Courtney Tower
OTTAWA (MNI) – Canada’s jobs strength Friday blew away all economists’ predictions but left them united in expecting an increase in the Bank of Canada’s policy rate next July 20, probably by 25 basis points.
“This strong report solidifies our call for the Bank of Canada to raise rates by 25 bps on July 20,” wrote analyst Benjamin Reitzes for BMO Nesbitt Burns shortly after Statistics Canada released its June employment report showing a surge of 93,200 jobs added in the month.
The June picture, the sixth consecutive month of jobs increases, “clearly shows that the Canadian recovery hasn’t stalled yet, despite signs of slowing momentum in the U.S. and other economies,” Reitzes wrote.
The June gains brought employment in Canada back to within only 15,000 of all the jobs lost since the labor market downturn began in the fall of 2008, and dropped the annual unemployment rate by 0.2% to 7.9%. This is the lowest rate since January of 2009, although it remains well above the 6.2% rate recorded in October, 2008.
The 93,000 new jobs in June surpassed analyst consensus predictions of a 20,000 gain in employment and the unemployment rate remaining at 8.1%. The new jobs were all in the services sector (+103,400) while goods industries lost 10,200 jobs, continuing the May loss of 7,700 and weak figures before that.
They were up 60,000 in the largest province, Ontario, perhaps in part reflecting the G-20 and G-8 meetings in Toronto and Huntsville, and +30,000 in the second largest province, Quebec. They were flat elsewhere and in actual decline in two of the four low-population Atlantic provinces.
“This recovery has continued to outpace the job market performance in the previous two major Canadian recessions by a large margin,” Diana Petramala at TD Economics said in a research note.
Petramala wrote what is a general opinion among economists, that the strong gains over the last three months probably reflect good economic growth over the last two quarters but that economic momentum is cooling off. She expects it to cool to a growth of 2.5% to 3.5% in the second half, “down from the 5-6% growth rates in the previous two quarters.”
However, Petramala adds, “employment recovery should continue in the coming months … at a more moderate pace of 15,000-25,000 new jobs per month.”
“The strong job trend and on-going decline in the unemployment rate argue for the Bank of Canada to move with its second rate hike of 25 basis points next week,” she said.
The jobs growth will support consumer spending “for some time,” wrote Gorica Djeric and Derk Holt, analysts at Scotia Capital Inc. The Bank of Canada must not have any choice “but to hike on July 20th with solid numbers like this,” they said.
However, the downside is that the Canadian economy remains functioning at low productivity, an economy “that remains biased to adding bodies versus getting more out of the already employed,” they added.
For Dawn Desjardins, assistant chief economist at Royal Bank of Canada, barring “another flare-up” in global financial markets, “we expect the Bank to gradually and steadily reduce the amount of policy accommodation.”
The Bank of Canada June 1 increased its rock-bottom 0.25% overnight rate target, where it had rested since April 2009, by 25 basis points to 0.50%. The BOC has indicated that more hikes are coming but has refused to indicate when and how soon, in light of the slow recovery elsewhere in the world and in Canada’s major market, the United States.
