Canada’s Unemployment Rate Surge Triggers Rate Cut Speculation
Canada’s labor market took an unexpected hit in March as the country’s unemployment rate surged to 6.1%. According to data released by Statistics Canada. The rise from 5.8% in February was driven by an increase in job seekers and temporary layoffs. Raising speculation the Bank of Canada will respond with an interest rate cut as soon as June.
The loss of 2,200 jobs last month missed economists’ forecasts for growth and marks two consecutive months the labor market has stalled. While the monthly decline is small, the spike in the unemployment rate to its highest level since January 2022 is a concern. Several industries such as accommodation, food services, wholesale and retail trade saw major drops in employment.
Rate Cut Bets Rise
The weak jobs data has intensified speculation the Bank of Canada will act sooner rather than later to support the labor market. Money markets have revised their expectations. And now price in a 75% probability of a rate cut as early as the central bank’s June policy meeting. Several economists also foresee the likelihood of lower borrowing costs starting mid-year as inflation cools and hiring falters. With the unemployment rate breaching 6%, further monetary stimulus may be needed to spur job creation.
The March labor report suggests Canada’s economic momentum is slowing more than anticipated. While one month does not constitute an entrenched trend. The jump in unemployment rate is a red flag that warrants watching. Should future data confirm weakness, traders expect the Bank of Canada will choose to cut rates to help reinvigorate hiring and get Canadians back to work.
