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Wages concerning, but ‘mixed-bag’ jobs data won’t slow Bank of Canada’s cuts: economists

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Economists say Canada’s latest employment data shows the economy is weakening, but wage growth could give the Bank of Canada pause when it comes to its next rate decision.

On Friday, Statistics Canada reported the country’s unemployment rate ticked up to 6.2 per cent in May as the economy added 27,000 jobs in the month. Additionally, Canada’s average hourly wage climbed 5.1 per cent year-over-year to $34.94.

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Here’s what economists have to say about the latest labour data:

‘Reason to be cautious’: Capital Economics

“The further rise in the unemployment rate in May shows that the labour market continues to loosen, but the surprising pick-up in wage growth still provides reason to be cautious about the idea that the Bank of Canada will cut interest rates again at the next meeting in July,” Stephen Brown, deputy chief North America economist at Capital Economics, said in a note.

Brown added that the headline jobs gain is masking some weakness, as full-time jobs fell by 35,000 and the real gain came from part-time employment, particularly among high school and university-aged Canadians.

“There seems to have been a strong start to the summer jobs market,” he said.

Economy hasn’t ‘fallen off a cliff’: TD

“There is plenty in May’s jobs data that supports the case for lower interest rates,” Leslie Preston, managing director and senior economist at TD, said in a note.

“However, the economy has cooled, but it has not fallen off a cliff. We expect that will lead to a gradual pace of interest rate reductions this year, with the (Bank of Canada) likely to cut at every other meeting.”

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Preston is expecting interest rates to come down by 50 basis points by the end of 2024.

‘Doesn’t really move the needle’: BMO

Douglas Porter, chief economist with the Bank of Montreal, said Canada’s wage growth in May is “troubling,” but noted the additional slack in the underlying data is positive for the Bank of Canada.

“Taken together, this mixed bag doesn’t really move the needle on the Bank of Canada Rate-o-Meter,” he said in a note.

“What may have a bit more sway on the outlook for the bank is today’s surprisingly robust U.S. payrolls report, which has again pushed back Fed easing prospects. Ultimately, though, policy will be driven by domestic factors, and the next two (consumer price index) reports will shape the July rate decision.”

‘Room to cut further’: RBC

Nathan Janzen, assistant chief economist at the Royal Bank of Canada, said the Bank of Canada will keep an eye on wage growth in the coming months, but other economic factors show the central bank can maintain its loosening plan.

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“The unemployment rate is still up almost a percentage point from a year ago, per-capita GDP growth is still declining, the (Bank of Canada’s) preferred core inflation measures have slowed sharply, and other wage measures from company payrolls are showing smaller increases than today’s labour force survey numbers,” he said in a note.

“The (Bank of Canada) won’t regret cutting interest rates this week and with interest rates still at ‘restrictive’ levels, there is room to cut further without stoking a resurgence in price growth.”

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