Posthaste: The odds of a Bank of Canada rate cut just rose based on this jobs measure, CIBC says

The odds of a

Bank of Canada
interest rate cut

are now rising based on a different measure of Canada’s jobs market, CIBC says.

Employment contracted by 32,500 positions in June, according to

Statistics Canada’s survey of employment, payrolls and hours

(SEPH) for June released on Thursday morning. The odds of a Bank of Canada rate cut when policymakers meet on Sept. 17 have since risen to 50-50, Noah Buffam, an associate in fixed income, currency and commodities at CIBC Capital Markets, said in an email.

The survey, which is viewed as less volatile than the Labour Force Survey (LFS), helps “to understand the underlying trend in the labour market as the last two LFS reports have shown significant volatility, with June strong and July weak,” he said in a note before the SEPH data came out.

Canada’s

jobs numbers

have been topsy-turvy of late, rising by 83,000 positions in June before plummeting by 41,000 in July. That’s made it harder for analysts and economists to get a handle on what is really going on with the workforce.

Buffam said the latest SEPH report revealed some weakness building up in non-tariff-affected sectors, including retail, construction, health care and social assistance.

“This is important as (Bank of Canada) governor (Tiff) Macklem linked further easing to economic weakness spreading to less tariff-sensitive sectors,” he said.

In a

press conference

following the Bank of Canada’s last interest rate decision, when policymakers held rates at 2.75 per cent for the third consecutive time, Macklem said fellow governors had the economy as a whole in their sights, including how much “spillover” there is from the most-affected sectors onto the rest of the economy.

“If those spillovers are bigger and there is more downward pressure on inflation and the upward pressure from

tariffs

and trade disruption is contained, there may be a need to cut interest rates further,” he said.

For example, the retail sector shed a bit more than 8,000 positions in June, while employment in construction declined by nearly 5,200 jobs.

Sectors directly affected by tariffs continued to lose jobs. Employment in manufacturing fell by around 8,300 jobs in June and is cumulatively down by 26,600 jobs since January. Transportation equipment manufacturing “was the largest contributor to the overall decline recorded since January,” followed by chemical manufacturing and machinery manufacturing, Statistics Canada said in its SEPH release.

But Shelly Kaushik, an economist at BMO Capital Markets, doesn’t think the latest labour data will hold that much sway over the Bank of Canada.

“While the June Labour Force Survey was solid, the July report was quite weak … both that, and the June SEPH, highlight how difficult it is to interpret Canadian jobs data,” she said in an email. “Still, the big picture is one of building slack in the labour market, as highlighted by the number of unemployed people per job vacancy and the rising jobless rate.”

There were 3.2 unemployed people per job vacancy in June, according to Statistics Canada, down from 3.3 in May, but up year over year as the number of jobless rose in tandem with a decline in the job openings. The

unemployment rate

stands at 6.9 per cent, up from 6.6 per cent at the start of year and well off the low of 4.8 per cent in 2022.

Kaushik said she’ll be watching Friday’s second-quarter

gross domestic product

release as well as August’s

consumer price index

and Labour Force Survey data to provide clues about what the Bank of Canada will do.

“That will give us more up-to-date numbers that could help inform the (Bank of Canada’s) thinking,” she said.

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Today’s Posthaste was written by Gigi Suhanic with additional reporting from Financial Post staff, Canadian Press and Bloomberg.

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