Canada’s Unemployment Rate Hits 7-Year High, Sparking Calls for Faster Interest Rate Cuts
Canada’s unemployment rate has risen to its highest level in seven years, reaching 6.6% in August 2024, according to the latest figures from Statistics Canada. This increase from 6.4% in July comes amid a gain of 22,000 net jobs, primarily in part-time positions, while full-time employment declined. The rising unemployment rate, coupled with broader economic challenges, has some economists urging the Bank of Canada to accelerate interest rate cuts to ease the pressure on the economy.
This latest increase marks the highest national unemployment rate since May 2017, excluding the pandemic years, and signals continued cooling in the Canadian labor market. Although Canada has added jobs overall, the rapid pace of population growth has expanded the labor pool, driving up the unemployment rate despite job gains. Student Struggles and Sector-Specific Trends
Students returning to school this fall have been particularly affected, with the unemployment rate for this group rising to 16.7%, the highest level seen since 2012, again excluding the pandemic period. This signals a difficult summer job market for younger workers, reflecting broader economic pressures. However, some sectors continue to show resilience. Health care and social assistance have been significant drivers of job growth, adding 157,000 positions over the past year and accounting for nearly half of all job growth during that period. Educational services also saw gains in August, while other sectors, including professional, scientific, and technical services, experienced job losses. Average hourly wages rose by 5.0% in August, slightly lower than the 5.2% growth recorded in July, but still reflective of a challenging inflationary environment. The data suggests that wage growth, while moderating, remains a concern for the Bank of Canada as it attempts to balance controlling inflation with supporting the labor market.
Bank of Canada’s Response and Economic Outlook
The rise in unemployment comes just days after the Bank of Canada delivered its third consecutive interest rate cut, aiming to reduce borrowing costs and stimulate the economy. As the labor market shows further signs of weakness, some economists argue that the central bank should increase the pace of its rate cuts.
TD Bank economist Leslie Preston commented that the August jobs report “is giving the OK” for the central bank to continue cutting rates, predicting two more quarter-point cuts by the end of 2024. Other economists, including CIBC’s Andrew Grantham, have called for faster action, suggesting that the Bank of Canada should consider larger cuts to alleviate mounting economic pressures. Grantham pointed out that with the unemployment rate now almost two percentage points higher than its historic low of 4.9% in June 2022, there are clear signs that the labor market is weakening more rapidly than anticipated.
BMO’s chief economist Doug Porter echoed these concerns, noting that declines in hours worked in August indicate further economic stalling. He predicts that the national unemployment rate could reach 7%, with provinces such as Ontario and Alberta already experiencing jobless rates above that mark. Porter also highlighted the potential for a larger-than-expected 50-basispoint rate cut by the Bank of Canada if labor market conditions continue to deteriorate in the coming months.
Bank of Canada governor Tiff Macklem acknowledged during the central bank’s recent rate cut decision that further action could be taken if economic data continues to underperform. The central bank has indicated that it is closely watching labor market trends and inflation data, with another interest rate decision expected on October 23. International Comparisons and Future Projections
Canada’s labor market developments come amid broader economic challenges across North America. In the United States, fresh labor data for August showed employers adding 142,000 jobs, up from just 89,000 in July, with the unemployment rate ticking down slightly to 4.2%. Economists expect the U.S. Federal Reserve to begin its own cycle of interest rate cuts when it meets later this month, with Wall Street predicting a mix of smaller and larger cuts depending on future economic data. In Canada, financial markets have already started to factor in more rate cuts from the Bank of Canada. Expectations for an October rate cut have been trimmed slightly, but most traders still anticipate at least two more 25-basispoint cuts by December. A growing minority are predicting a larger 50-basispoint cut next month, especially if further weakness in the labor market and other economic indicators materialize. Productivity Concerns and Wage Growth
Adding to Canada’s economic woes is a decline in productivity. Data released earlier in the week revealed that Canadian productivity—measured as output per hour worked—has fallen for the seventh time in the last eight quarters. This trend has raised concerns about the sustainability of wage growth without corresponding productivity gains. The Bank of Canada has flagged wage growth as a key concern, particularly when not accompanied by rising productivity, as it could impede efforts to bring inflation back to the central bank’s 2% target. Despite these challenges, some signs of cooling in wage growth have provided a glimmer of hope for policymakers. CIBC’s Grantham noted that the wage moderation seen in recent data could ease some of the Bank of Canada’s concerns, though further deterioration in the labor market could still prompt more aggressive monetary policy action.