Up the road, Canada is preparing to release its unemployment data for June. Analysts are looking for a modest uptick of one-tenth in the unemployment rate which underlines continuing stresses in the economy. Scheduled for publication on Friday at 12:30 GMT by Statistics Canada, this report is expected to show the unemployment rate increasing to 7.1%, up from 7.0% in May. With each tick higher, market participants are becoming more and more concerned about the economic backdrop. All signs point toward a slowdown in hiring, if not the downright likelihood of layoffs.
The Canadian labour market has been through radical challenges in recent months, motivated mainly by economic uncertainty. Analysts expect total employment to be flat in June, undoing all of May’s gain of 8,800 jobs. Creation of new jobs projected to almost come to a standstill during the next half-year. At 10,000 jobs a month, we expect labor employment dynamics to change dramatically.
Economic Uncertainty and Its Impact
Yet the Canadian economy is not blind to external pressures, especially from its most reciprocal trader, the United States. As trade negotiations and retaliatory tariffs further add to uncertainty, hiring sentiment among Canadian businesses is weak. The Purchasing Managers’ Index (PMI) reports indicate increased likelihood of layoffs, particularly within the goods sector, further complicating the employment landscape.
“Canadian labour markets will remain under pressure in June, with total employment forecast to hold unchanged as the UE rate rises 0.1 pp to 7.1%. Economic uncertainty continues to weigh on hiring sentiment, with PMIs pointing to more layoffs in the goods sector, and our forecast would see the 6m trend slip to just 10k/month. Wage growth is projected to hold steady at 3.5% y/y” – analysts at TD Securities
This unsustainable state of affairs could force the Bank of Canada (BoC) to reconsider its course. They should even be discussing the need for interest rate cuts. Governor Tiff Macklem has indicated that ongoing tariff-related uncertainties constrain the bank’s ability to make long-term forecasts about economic health.
Market Reactions and Predictions
The expected increase in the unemployment rate impacts more than just those looking for work. In addition, it has more significant direct effects on the Canadian dollar, and it drives overall economic sentiment. Forecasts & Investors are particularly focused on the Employment Change figure, which carries much of the heavy burden in importance in Canada’s labor market stats. With expectations set for no job additions in June, market participants remain wary of how these trends will influence future economic policies.
This is troubling because other economic indicators are pointing in all sorts of mixed directions. FXStreet’s Senior Analyst Pablo Piovano points out that momentum indicators are indicating a lack of strength in any ongoing moves.
“Furthermore, momentum indicators appear mixed: the Relative Strength Index (RSI) hovers around 50, while the Average Directional Index (ADX) is around 17, indicating some loss of impetus in the current trend,” – Pablo Piovano
This seemingly benign observation unearths the devilish connection that labor market dynamics have to economic misery. It recommends that decision-makers and stakeholders continue to walk gingerly through this dark and dubious valley.
The Road Ahead
The next big data point on unemployment will be huge in setting market expectations. Perhaps most importantly, it will have a real and profound effect on central bank policymaking. With significant external pressures and internal labor market challenges, analysts emphasize the importance of closely monitoring economic indicators in the coming months.
It really is time for the Bank of Canada to rethink its monetary policy playbook. That may be the case if the general climate does not change for the better. Analysts are already calling for at least one more rate cut this July. That will be true only if tariffs don’t continue dragging down economic growth.