Economists call for rate cuts as Canada posts largest back-to-back job losses since early pandemic
Canada’s unemployment rate has climbed to 6.9 percent, up from 6.2 percent a year ago and 5.1 percent two years ago, prompting renewed pressure on the Bank of Canada to lower interest rates.
The increase, which marks a 180-basis point rise over two years, has historically signalled recession, as noted by David Rosenberg in Financial Post.
According to Rosenberg, Statistics Canada's Survey of Employment, Payrolls and Hours showed employment fell by 54,100 in March following a 40,200 decline in February.
The Labour Force Survey for April indicated virtually no rebound, while the workweek remained flat for the 10th time in 11 months. Goods-producing sectors posted a 0.2 percent month-over-month decline in hours worked.
Rosenberg reported that the job losses were concentrated in the services sector, which lost 59,500 positions in March.
This followed a 32,700 decline in February, marking the largest consecutive monthly losses since spring 2020. Real estate, construction, retail, and finance — all interest-sensitive industries — experienced heavy losses.
He said these sectors are “begging Bank of Canada governor Tiff Macklem to provide more rate relief.”
As per BNN Bloomberg, economists argue the central bank faces a difficult path.
Andrew DiCapua of the Canadian Chamber of Commerce called it “mission impossible,” adding the Bank of Canada “should be resuming rate cuts to get their interest rates lower to somewhere around two percent.”
The Bank’s current policy rate is 2.75 percent following a pause in April after seven consecutive cuts.
Stephen Brown of Capital Economics told BNN Bloomberg he expects three more quarter-point cuts to bring the rate down to two percent before year-end.
He argued for a June cut “as insurance against those downside risks,” adding that if the Bank delays, “businesses and consumers may hold back even more on their spending decisions.”
Despite the employment downturn, BNN Bloomberg reported that the economy expanded at a 2.2 percent annualised rate in Q1 2025.
However, Statistics Canada attributed this to businesses accelerating exports and stockpiling ahead of new US tariffs.
Macklem had warned at the G7 Finance Ministers’ Summit that economic growth would slow after the first quarter.
The manufacturing sector, which is sensitive to trade, saw a modest loss of 1,800 jobs in March, according to Rosenberg.
However, April data showed a sharper contraction of 31,000 jobs in manufacturing alone.
Rosenberg added that the Canadian dollar rally has worsened the downturn in export-oriented sectors such as manufacturing and transportation/warehousing, which saw a combined loss of 3,500 jobs.
Rosenberg highlighted that wage growth showed no sign of inflation.
Average hourly earnings for salaried workers were flat, following a 1.6 percent drop in February. Hourly employees saw a 0.2 percent month-over-month decrease.
He wrote that “there was no inflation coming out of this latest report.”
Employment growth has slowed sharply, Rosenberg stated, from 3.5 percent two years ago to just 0.2 percent currently.
He said such weak year-over-year job growth has not been seen outside of the 2020 pandemic and early 2021, except during the early 2010 recovery from the Great Recession.
He also noted that fewer than 60 percent of those entering the labour market in the past 12 months secured jobs.
According to Rosenberg, the broadest measure of unemployment — the R-8 rate, which includes all idle labour resources — rose to 9.2 percent from 8.4 percent a year ago and 7.2 percent two years ago.
He stated this excess labour capacity suggests little risk of inflation, calling it “something the Bank of Canada should be devoting its attention to.”
CIBC chief economist Avery Shenfeld told BNN Bloomberg he also saw the case for a rate cut but expected the Bank to hold in June.
“The clock will start to tick louder on getting some interest rate relief if the economy remains soft,” he said.
Rosenberg concluded that investment implications were clear: “go short the Canadian dollar and go long the front end of the Bank of Canada bond curve.”
He acknowledged the contrast between economic weakness and record highs on the Toronto Stock Exchange, writing that “the TSX is not GDP.”
He cited a 1.6 percent annual increase in real activity against population growth of 2.7 percent, resulting in a 0.9 percent decline in per capita economic output.
