July Job Losses Raise Questions, But Rate Cuts May Wait

Labour market sees sharpest monthly drop in over three years, but economists say the Bank of Canada remains focused on inflation before making its next move.

Canada’s labour market took a notable step back in July, posting its largest one-month decline in employment since early 2022. Statistics Canada data shows the economy shed roughly 41,000 jobs, erasing much of June’s rebound. The losses were led by 51,000 fewer full-time positions, with part-time employment also slipping by 39,000.

Despite the drop, the unemployment rate held steady at 6.9%, near its highest level in almost a decade outside of the pandemic years. The stability was largely due to a smaller share of Canadians actively participating in the labour force.

Youth employment saw the steepest decline, with 34,000 jobs lost among those aged 15–24. That pushed the youth unemployment rate to 14.6%—the highest since 2010 outside of pandemic conditions. Sector breakdowns show construction down 22,000 positions, information/culture/recreation down 29,000, and business-building/support services down 19,000. Transportation and warehousing provided a bright spot, adding 26,000 jobs.

Rate Cut Odds Rise, But September Still Uncertain

The weaker labour market has prompted traders to price in a 40% probability of a Bank of Canada rate cut at its September 17 meeting. Even so, many economists believe the Bank will hold the policy rate at 2.75%, pointing to inflation as the deciding factor.

Doug Porter, chief economist at BMO, noted that weaker employment conditions could eventually ease inflationary pressures, but cautioned that the Bank will need to see clear evidence of slower price growth in the next two inflation reports before moving.

TD’s Leslie Preston echoed that sentiment, saying July’s jobs report “likely won’t move the needle much” on the Bank’s current outlook. Michael Davenport of Oxford Economics also expects no immediate move, citing ongoing trade tensions and government spending measures that could support economic activity in the months ahead.

Market Reaction Minimal

Bond markets reacted only slightly to the release. Canada’s 5-year government bond yield edged down by about two basis points to 2.92%.

Mortgage Insight

For borrowers, this latest data suggests interest rates are likely to stay where they are in the short term. If inflation trends lower later this year, the Bank of Canada could begin a gradual easing cycle—something variable-rate holders and those considering refinancing will want to watch closely.

Source: Mortgage Professionals Canada