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Canada employment falls for 2nd month as labour force shrinks

Canadian employment levels unexpectedly fell for a second straight month in July, as workers continued to drop out of the labor force. The jobless rate remained at record lows.

The economy shed 30,600 jobs last month, Statistics Canada reported Friday in Ottawa, a surprise negative reading compared to the 15,000 gain anticipated by economists. The jobless rate remained at 4.9%, because the labor force also shrank by a similar amount.

The employment drop last month adds to a loss of 43,200 jobs in June, suggesting that Canada’s employment boom over the past year has come to a sudden stop.

The question now is how much of the slowdown is being driven by labor supply factors, and how much by the initial impact of higher borrowing costs and weakness in underlying demand. The mix is important to the Bank of Canada, which has been tightening policy aggressively because of worries that demand for labor has far outpaced supply. 

The Canadian dollar fell 0.6% to C$1.2939 per U.S. dollar at 8:45 a.m. in Toronto trading. Yields on Canadian government two-year bonds rose 8 basis points to 3.24%. The U.S. also released employment data on Friday that showed nonfarm payrolls rising 528,000 last month, beating all estimates and the largest increase in five months.

The data, however, continue to show signs of extreme tightening in the labor market, even with the fall in employment. Labor force participation rates fell for a second month, dropping to 64.7% from as high as 65.4% in March. The number of Canadians in the labor force fell by 27,000, mostly women, that adds to the 97,500 drop in June.

The average hourly wage rate was up 5.2% from a year ago, unchanged from June and matching the fastest increase in records dating to 1997, outside of the pandemic.

Hours worked fell 0.5% in July.

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