A shocking fall in the latest job numbers and a higher-than-anticipated rise in the unemployment rate have significantly boosted the odds of an interest rate cut when the Bank of Canada makes its next decision in June.
The economy added just 7,400 jobs in April, considerably undershooting the FactSet consensus estimate of 10,000. Meanwhile, the joblessness rate jumped 0.2% to 6.9%, topping the 6.8% estimate, according to Statistics Canada’s April Labor Force Survey. Outside the pandemic, this is the highest unemployment rate Canada has seen since January 2017.
The tariff hit and growing fears of a recession underpin the labor market setback, as businesses cut jobs and implement hiring freezes to ride out the economic uncertainty. The bump in the joblessness rate coincides with weaker February GDP data, suggesting economic growth has been stalled by unresolved US tariffs on Canadian goods and retaliatory Canadian levies on US exports.
Analysts say this has implications for the central bank, which decided to pause rate cuts at its last meeting in April. A deterioration in the economic data since then has added pressure on the Bank to deliver another cut to help stimulate business and consumer spending. The Bank has scaled back its policy rate at seven times of its last eight meetings, taking it from a peak of 5.00% last summer to its current 2.75%.
The following is commentary from economist notes to clients about the April jobs report.
Charles St-Arnaud, chief economist at Alberta Central
“Overall, the deterioration of the labor market may be signaling the start of a possible recession in Canada due to the US tariffs. The report confirms that the US tariffs are having an important impact on Canada’s labor market. If it was not for the hiring for the federal election, Canada would have seen another month of job losses.
“The further weakening of the labor market increases the likelihood that the Bank of Canada will cut its policy rate at the June meeting. However, the most recent CPI number, while positive on the surface, hid some concerning trends, especially a broadening of inflationary pressures. While we think the balance of risk is likely toward a cut in June, the next CPI released on May 20 could be a deciding factor.”
Douglas Porter, chief economist at BMO Economics
“The two big stories were the initial shots in the trade war and the election. On the former, manufacturing payrolls took a bit hit (-30,600)—the sector only saw larger declines in the pandemic and GFC over the past 19 years. Clearly the tariffs are weighing on the sector, as on the related wholesale trade group. On the latter, if we take out the 37,100 rise in public administration jobs, headline employment would have again been around -30,000. Construction, resources, and hospitality industries were all down last month.
“It doesn’t take an archeological dig to realize this is a weak report. Labor market slack is building, and wages gains have slowed to a three-year low. This is the first major data reading for April, and it shows that tariffs are already taking a material bite out of the economy. This clearly increases the odds of a 25-basis-point rate cut in June.”
Stephen Brown, North America economist at Capital Economics
“Employment would have fallen again in April were it not for the boost from the federal election, which supports our view that the Bank of Canada will resume its loosening cycle next month and ultimately cut by a little more than markets have recently been pricing in.
“Adding to the bad news, most of the offset to those falls came from a 37,100 jump in public administration employment linked to the April election, which will almost certainly be fully reversed in the May Labour Force Survey.
“We continue to expect immigration to slow sharply over the rest of this year and, because Canada has escaped relatively lightly from changes in US trade policy, we forecast only moderate employment declines over the next couple of quarters. Nonetheless, the risks to our forecast that the unemployment rate will peak at 7.0% are now tilted to the upside.”
Ali Jaffery, senior economist at CIBC Economics
“Today’s report was clearly weak, and the unemployment rate could potentially have reached 7% had it not been for election hiring. The April jobs reports make a strong case for a June cut.
“At the time of the April decision, the Bank seems very focused on a multi-layered cake of uncertainty—how US trade policy evolves and also, how the Canadian economy responds to trade tensions—and we can appreciate how tricky that balance is. But they also seem to believe that the power of past rate cuts was a strong enough force to buy them some time in the face of that uncertainty. Today’s data should challenge that thinking.”
Tiago Figueiredo, macro strategy at Desjardins Capital Markets
“The Canadian labor market remained on wobbly footing in April. Most of the slowdown in hiring came from the manufacturing and trade sectors. Notably, Ontario accounted for the majority of weakness in manufacturing.
“The Bank of Canada should be concerned looking at these numbers. The elevated level of uncertainty, coupled with what has now been almost three months of weak readings, should push central bankers to resume focusing on downside risks to the economy rather than upside risks to inflation. As such, we continue to see the Bank of Canada restarting its easing cycle in June with a 25-basis-point cut following its brief pause in April. As we’ve been saying for some time, we think the decision in June will be between cutting 25 or 50 basis points to support the economy.”
Matthieu Arseneau, economist at the National Bank of Canada
“It didn’t take long for economic data to be impacted by tariff uncertainty in Canada. For the second consecutive month, the unemployment rate is up, and the employment rate is down.
“The Bank of Canada decided to pause its monetary easing process in April amid a highly uncertain environment. One thing is now certain: the Canadian economy has been severely shaken by tariff uncertainty, a paralysis that risks impacting investment and hiring, with knock-on effects for consumption. In this environment, we see little reason why the central bank should remain insensitive to a labor market that is already considered to be in excess supply and is becoming increasingly fragile. We anticipate that rate cuts will resume next month.”
Michael Davenport, senior economist at Oxford Economics
“Cracks are widening in Canada’s labor market, as the impact of the global trade war builds. Employment stagnated in April and an increase in job seekers lifted the unemployment rate 0.2 ppts to 6.9%. Private sector employment fell 26,800 (-0.2% m/m) last month, with job losses concentrated in sectors most exposed to US tariffs like manufacturing, natural resources, and wholesale trade. If it weren’t for the federal election, which boosted temporary hiring in public administration, total employment would have likely declined for the second consecutive month in April.
“Nearly all Canadian counter tariffs have now been paused, but significant US tariffs remain in place on Canada and the rest of the world. Lower counter tariffs and major fiscal stimulus under the newly re-elected Liberal government will lessen the downturn in Canada’s economy, but we still think a recession is underway that will lead to 120,000 job losses and drive the unemployment rate to 7.4% by the end of this year.”
Claire Fan, senior economist at Royal Bank of Canada
“There are now clearer signs that the ongoing trade war is hitting Canadian labor market. Employment would have fallen by 30k in April had it not been a surge in public admin jobs thanks in part to temporary election hiring. Most of the decline outside of public administration can be traced back to manufacturing, where employment declined for a third straight month in April.
“Going forward, slower population growth and reduced demand for Canadian exports due to disruptive US tariffs will remain headwinds to job growth in Canada. The economic outlook still remains highly contingent on the evolution of international trade risks, but job openings have continued to edge lower, signaling more softening in hiring in the pipeline. Overall, we expect slowing conditions will push the unemployment rate up to over 7% this year.”
Tu Nguyen, economist at RSM Canada
“April’s jobs report showcases the sheer impact of tariffs on the Canadian economy. The contrast between the goods and services-producing sectors is stark. The goods-producing industry lost 33,000 jobs, almost all in manufacturing (31,000) and trade (27,000) – areas that are the hardest hit by tariffs.
“Further job losses are expected in the upcoming months as the unemployment rate will creep above 7%. This is especially true in manufacturing and trade, as well as other industries that depend on U.S. demand because of tariffs and trade policy uncertainty.
“As the economy—both in Canada and abroad—slows, job losses could spread to other industries, including travel, real estate and entertainment … the Bank of Canada’s priority still lies in maintaining price stability, which is vital at a time of heightened volatility. If inflation remains near 2% while unemployment spikes, a rate cut in June is possible, but by no means a given.”
Derek Holt, vice president and head of capital markets economics at Scotiabank
“I don’t think anything has changed for the Bank of Canada and only partly given the low trust factor for the report [due to a historically low seasonal adjustment factor biased the outcome]. The Bank of Canada’s mandate is 2% inflation over the medium-term. The tension remains between growth/jobs versus 2% over the medium-term while still at neutral.
“It’s not that it’s entirely unreasonable for markets to be pricing another 50 basis points of cuts through year-end. It’s just that I wouldn’t push it further at this point, and think that the uncertain effects on inflation plus the likely substitution of fiscal easing for monetary easing make the outlook more complex and uncertain than existing market pricing.”
Leslie Preston, managing director and senior economist at TD Bank
“… scratch beneath the surface and Canada’s labor market continued to soften. The impact of trade tariffs appears to be working their way through the economy with job losses in trade exposed sectors. Month-to-month job numbers in the labor force survey are always a bit volatile, but on a three-month average basis Canada has lost jobs. The unemployment rate continues to drift higher, and wage gains are cooling.
“In April, the Bank of Canada opted to wait and see how tariffs and Canada’s response shake out before lowering interest rates any further. The economic evidence continues to mount that the Canadian economy is slowing in the face of U.S. tariffs. We think more interest rate cuts are warranted, with the next 25-basis-point cut on June 4.”
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