Canada’s labour market showed strain from the U.S. trade war in April, with the unemployment rate rising unexpectedly to 6.9 per cent as manufacturing jobs declined, according to Statistics Canada data released on Friday. Overall employment was essentially flat, with 7,400 net jobs added for the month — a number held in positive territory due to temporary hiring for the federal election.
The weak job figures make a Bank of Canada (BoC) interest rate cut in June more likely, economists say.
“It doesn’t take an archeological dig to realize this is a weak report,” writes BMO chief economist Douglas Porter. “Labour market slack is building, and wage 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.”
Economists had expected a job gain of 25,000 and for the unemployment rate to hold at 6.7 per cent, according to consensus estimates published by CIBC Economics.
The largest drop was seen in the manufacturing sector, with a net loss of 31,000 jobs, a 1.6 per cent decline from March. Regionally, the deepest manufacturing impact was in Ontario, with 33,000 fewer jobs. Statistics Canada attributed the change to “uncertainty related to tariffs on exports to the United States.” On a year-over-year basis, manufacturing job numbers were steady.
“The pain was clearly due to trade tensions,” CIBC economist Ali Jaffery wrote in a note following the data release, calling the results “another turn for the worst.”
“Overall, we are seeing a job market that was weak heading into the trade war, now looking like it could soon buckle.”
A decline in job openings suggests hiring could slow further, wrote RBC economist Clare Fan. “Overall, we expect slowing conditions will push the unemployment rate up to over 7 per cent this year.”
The trade war’s impact can be seen in data from Windsor, Ont., where Statistics Canada says the automotive industry accounts for 43.1 per cent of manufacturing jobs and 9.2 per cent of total employment. The three-month moving average unemployment rate for the Windsor region rose by 1.4 percentage points in April to reach 10.7 per cent.
In a statement sent by email, Brendon Bernard, senior economist at job website Indeed, said economic conditions “were already trending in the wrong direction” and warned of the consequences ahead should the trade war persist.
“More months like this would send the labour market to its weakest state (outside the pandemic) in years. It’s already been a challenge for many groups of job seekers, particularly youth, but further deterioration would mean the pain will start spreading to workers who had been insulated from the weakening labour market over the past two years.”
Scotiabank economist Derek Holt took an opposing view, arguing that the spike in unemployment was “probably a temporary effect” caused by the labour force growing due to election hiring and that the overall data was less reliable due to “out-of-sample” seasonal adjustments. The April data thus “changes nothing” for the BoC, which must still be mindful of tariff effects on inflation as well as new fiscal policy from the newly elected government, Holt says.
Ontario also saw the biggest overall jobs decline, with a net drop of 35,000 jobs, followed by Nova Scotia (-8,500). Employment was flat or slightly up in other provinces. Employment dropped among women 25 to 54 years old, falling by 60,000 jobs or -0.9 per cent. It increased among people 55 years old and older by 35,000 jobs or 0.8 per cent, and men 25 to 54, with a gain of 24,000 jobs or 0.3 per cent.
The highest job gains were reported in the public administration sector, with 37,000 positions added, a gain that Statistics Canada notes aligns “with the hiring of temporary workers for activities related to the recent federal election.” BMO’s Porter wrote that “the headline job gain was clearly flattered by election-related hiring” and pointed out that in provinces that did add overall jobs, “gains aside from public admin were mostly small to non-existent.”
CIBC’s Jaffery said election hiring may have skewed both overall and full-time job figures. “In the absence of that hiring, employment growth would have been negative and we would likely have had a 7 per cent unemployment rate based on reasonable assumptions around labour force participation,” he wrote.
In March, Canada’s labour market lost 32,600 jobs, the first net decrease in over three years, while the unemployment rate rose 0.1 percentage points to 6.7 per cent.
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