Significant gains in jobs numbers indicate the economy continues to tick along: Economist
Canada’s economy added more jobs in June than economists had forecasted, prompting some expert to call for yet another rate hike from the country’s central bank next week.
The economy gained 60,000 jobs last month compared with the 20,000 economists had expected, while the unemployment rate rose to 5.4 per cent, according to data released by Statistics Canada on Friday.
In response to the strong numbers caused Deloitte Canada's chief economist Dawn Desjardins to call for another interest rate hike from the Bank of Canada on July 12.
“I think this really does justify that rate move (in June) and it does justify another one coming next week,” she told BNN Bloomberg in a TV interview on Friday.
Desjardins noted that while there was some weakness in wage growth figure, it is still too high for the Bank of Canada.
Average hourly wages rose 4.2 per cent on a year-over-year basis in June, following an increase of 5.1 per cent in May, the data showed.
“From what they’re looking at, it’s not going to be, ‘Oh okay, mission accomplished.’ I think it’s still the case that they’re going to be worried about wage pressures feeling further inflation pressures,” she said.
Desjardins is expecting inflation in Canada to cool in the months ahead, but still remain higher than the central bank’s two per cent target rate.
“We have it (inflation) moving down just below three per cent,” she said.
Another economist agreed with Desjardins’ outlook.
“The numbers today just kind of reinforce expectations that the bank will move next week,” Robert Kavcic, senior economist at BMO Capital Markets, told BNN Bloomberg in an interview on Friday.
He noted that the labour market is exceptionally tight and it will take longer to reach the Bank of Canada’s data expectations.
“The labour market is the last thing to crack,” he added.
However, Kavcic said he is also keeping a close eye on how rate hikes are impacting the housing market.
“If the most interest rate sensitive sector of the economy (housing) is actually stabilizing and accelerating -- as it is has been in Canada through spring -- then that’s a pretty clear warning shot that policy isn’t tight enough,” he cautioned.
Kavcic added that the central bank’s June rate hike is already having an incremental impact on cooling down housing in early data his team has seen.
In this kind of environment, he anticipates the bank will keep rates higher for longer than people had expected to ensure it reaches its two per cent inflation target.
Another economist, meanwhile, argued that the Bank of Canada should hold off on hiking next week in order to have more time to assess economic data.
“We are in favor of a pause in the rate hike for July as it helps to keep the pace of rate hikes slower while giving the central bank more time before the next meeting in September to reassess its decision,” Tuan Nguyen, economist with accounting and consultancy from RSM Canada, wrote in a note to clients on Friday.
Nguyen pointed to the subtle softness in wage growth as an indicator of a possible slowdown ahead.
“The job report has pushed the economy somewhat closer to a soft-landing scenario than before,” he added.