Employment declined again in July, down 2.8K. The employment rate—the proportion of the population aged 15 and older who are working—fell 0.2 percentage points to 60.9% in July. The employment rate has followed a downward trend since reaching a high of 62.4% in January and February 2023 and has fallen in nine of the last ten months.

In July 2024, an increase in full-time work (+62,000; +0.4%) was offset by a decline in part-time work (-64,000; -1.7%). Despite these changes, part-time employment (+3.4%; +122,000) has grown faster than full-time employment (+1.4%; +224,000) on a year-over-year basis.

Public sector employment rose by 41,000 (+0.9%) in July and was up by 205,000 (+4.8%) compared with 12 months earlier. Public sector employment gains over the last year have been led by increases in health care and social assistance (+87,000; +6.9%), public administration (+57,000; +4.8%) and educational services (+33,000; +3.3%) (not seasonally adjusted).

Self-employment changed little in July and was up by 55,000 (+2.1%) year-over-year.

The jobless rate rose more for recent immigrants, especially youth than those born in Canada.

The unemployment rate for this group was 22.8% in July, up 8.6 percentage points from one year earlier. For recent immigrants in the core working age group, the unemployment rate rose by 2.0 percentage points to 10.4% over the same period.

In comparison, the unemployment rate for people born in Canada was up 0.5 percentage points to 5.6% on a year-over-year basis in July, while the rate for more established immigrants (who had landed in Canada more than five years earlier) was up 1.2 percentage points to 6.3%.

Employment in finance, insurance, real estate, rental, and leasing declined by 15,000 (-1.0%) in July, marking the first decline since November 2023. On a year-over-year basis, employment in this industry showed little change in July 2024.

Public administration saw a rise in employment by 20,000 (+1.6%) in July, following a decline in June (-8,800; -0.7%). Employment in transportation and warehousing also increased in July by 15,000 (+1.4%), partially offsetting declines in May (-21,000; -1.9%) and June (-12,000; -1.1%).

British Columbia experienced the highest job losses, while Ontario and Saskatchewan were the only provinces to add employment.

Adjusted to US standards, the unemployment rate in Canada for July was 5.4%, which was 1.1 percentage points higher than in the United States (4.3%). Compared with 12 months earlier, the unemployment rate increased by 0.8 percentage points in both Canada and the United States.

The employment rate has decreased in both countries over the past 12 months, with a larger decline in Canada. From July 2023 to July 2024, the employment rate (adjusted to US concepts) fell by 1.0 percentage points to 61.5% in Canada, while it declined by 0.4 percentage points to 60.0% in the United States.  Compared with 12 months earlier, the unemployment rate increased by 0.8 percentage points in Canada and the United States.

This is the only jobs report before the Bank of Canada meets again on September 4. Traders expect further rate cuts at the three remaining meetings this year.

Last week, weaker employment data in the US contributed to a selloff in global equities, as bonds rallied amid increased bets that the Federal Reserve will be forced to cut borrowing costs more deeply and quickly than previously expected.

The interconnectedness of the economies of the United States and Canada implies that any further weakening in the former is likely to permeate into the latter. This scenario affords Macklem the latitude to normalize borrowing costs without the concern of outpacing the Federal Reserve to a degree that could jeopardize the Canadian dollar.

“It wasn’t a ‘blow the doors off’ month by any means, but Canada’s housing numbers did perk up a bit on a month-over-month basis in June following the first Bank of Canada rate cut,” said Shaun Cathcart, CREA’s Senior Economist. “Year-over-year comparisons don’t look great mainly because of how many buyers were still jumping into the market last spring, but that’s a story about last year. What’s happening right now is that sales were up from May to June, market conditions tightened for the first time this year, and prices nationally ticked higher for the first time in 11 months”.

As the national increase in new listings was smaller than the sales gain in June, the national sales-to-new listings ratio tightened to 53.9% compared to 52.8% in May. The long-term average for the national sales-to-new listings ratio is 55%, with a sales-to-new listings ratio between 45% and 65%, generally consistent with balanced housing market conditions.

“The second half of 2024 is widely expected to see the beginnings of a slow and gradual return of buyers into the housing market,” said James Mabey, Chair of CREA. “Those buyers will face a considerably different shopping experience depending on where they are in Canada, from multiple offers in places like Calgary to the most inventory to choose from in over a decade in places like Toronto.

At the end of June 2024, there were 4.2 months of inventory nationwide, down from 4.3 months at the end of May. This was the first time that the number of months of inventory had fallen month over month in 2024. The long-term average is about five months of inventory.

The National Composite MLS® Home Price Index (HPI) increased by 0.1% from May to June. While a slight increase, it was noteworthy because it was the first month-over-month gain in 11 months. Regionally, prices are still generally sliding sideways across much of the country. The exceptions remain Calgary, Edmonton, and Saskatoon, and to a lesser extent Montreal and Quebec City, where prices have steadily increased since the beginning of last year.

That said, there have been more recent upward price movements in other markets, including across Ontario cottage country, Mississauga, Hamilton-Burlington, Kitchener-Waterloo, Cambridge, London-St. Thomas, and Halifax- Dartmouth.

The non-seasonally adjusted National Composite MLS® HPI stood 3.4% below June 2023. This mostly reflects how prices took off last April, May, June, and July – something that has not been repeated in 2024.

Housing activity will gradually accelerate over the next year as interest rates continue to fall. Yesterday, bond yields fell considerably due to the marked improvement in the June US inflation data. Markets are now pricing in a 90% chance of a Federal Reserve rate cut in September, allaying fears that the Canadian dollar will decline precipitously if the Bank of Canada continues to go it alone in easing monetary conditions.

Next week’s CPI data will determine whether the Bank of Canada cuts rates at their July confab or waits until the September meeting. A further reduction in core inflation will open the doors to another rate cut on July 24, particularly given the continued rise in the Canadian unemployment rate. Rising monthly mortgage payments in the wake of record renewals will continue to slow discretionary consumer spending, providing further impetus for Bank of Canada rate cuts.

“It wasn’t a ‘blow the doors off’ month by any means, but Canada’s housing numbers did perk up a bit on a month-over-month basis in June following the first Bank of Canada rate cut,” said Shaun Cathcart, CREA’s Senior Economist. “Year-over-year comparisons don’t look great mainly because of how many buyers were still jumping into the market last spring, but that’s a story about last year. What’s happening right now is that sales were up from May to June, market conditions tightened for the first time this year, and prices nationally ticked higher for the first time in 11 months”.

As the national increase in new listings was smaller than the sales gain in June, the national sales-to-new listings ratio tightened to 53.9% compared to 52.8% in May. The long-term average for the national sales-to-new listings ratio is 55%, with a sales-to-new listings ratio between 45% and 65%, generally consistent with balanced housing market conditions.

“The second half of 2024 is widely expected to see the beginnings of a slow and gradual return of buyers into the housing market,” said James Mabey, Chair of CREA. “Those buyers will face a considerably different shopping experience depending on where they are in Canada, from multiple offers in places like Calgary to the most inventory to choose from in over a decade in places like Toronto.

At the end of June 2024, there were 4.2 months of inventory nationwide, down from 4.3 months at the end of May. This was the first time that the number of months of inventory had fallen month over month in 2024. The long-term average is about five months of inventory.

The National Composite MLS® Home Price Index (HPI) increased by 0.1% from May to June. While a slight increase, it was noteworthy because it was the first month-over-month gain in 11 months. Regionally, prices are still generally sliding sideways across much of the country. The exceptions remain Calgary, Edmonton, and Saskatoon, and to a lesser extent Montreal and Quebec City, where prices have steadily increased since the beginning of last year.

That said, there have been more recent upward price movements in other markets, including across Ontario cottage country, Mississauga, Hamilton-Burlington, Kitchener-Waterloo, Cambridge, London-St. Thomas, and Halifax- Dartmouth.

The non-seasonally adjusted National Composite MLS® HPI stood 3.4% below June 2023. This mostly reflects how prices took off last April, May, June, and July – something that has not been repeated in 2024.

Housing activity will gradually accelerate over the next year as interest rates continue to fall. Yesterday, bond yields fell considerably due to the marked improvement in the June US inflation data. Markets are now pricing in a 90% chance of a Federal Reserve rate cut in September, allaying fears that the Canadian dollar will decline precipitously if the Bank of Canada continues to go it alone in easing monetary conditions.

Next week’s CPI data will determine whether the Bank of Canada cuts rates at their July confab or waits until the September meeting. A further reduction in core inflation will open the doors to another rate cut on July 24, particularly given the continued rise in the Canadian unemployment rate. Rising monthly mortgage payments in the wake of record renewals will continue to slow discretionary consumer spending, providing further impetus for Bank of Canada rate cuts.

Canada shed 1,400 jobs last month, following a 26,700 increase in May. Economists had been expecting a stronger showing. Monthly job gains have averaged around 30,000 in the past year, while labour force growth has been more than 50,000, causing the jobless rate to rise. Full-time jobs declined marginally while part-time work edged upward. Job losses in June were led by decreases in transportation and warehousing, information and recreation, and wholesale and retail trade.

Regionally, jobs decreased in Quebec but rose in New Brunswick and Newfoundland and Labrador.

Average hourly wages among employees increased 5.4% in June on a year-over-year basis, following growth of 5.1% in May (not seasonally adjusted). This won’t sit well with the central bank’s Governing Council, but they realize that wage inflation is a lagging economic indicator, and rapidly rising unemployment will ultimately dampen wage inflation.

The data were released at the same time as US payrolls, which showed hiring moderated in June and prior months were revised lower. This boosts the odds that the Federal Reserve will begin to cut interest rates in the coming months. Fluctuations in the loonie are often driven by the difference between US and Canadian interest rates, owing to the two countries’ tight economic links.

Traders in overnight swaps increased their bets that the Bank of Canada will cut borrowing costs again in July, putting the odds at around two-thirds, up from around 55% before the release.

In a speech last week, Macklem said it’s “not surprising” that wages are moderating more slowly than inflation because wages tend to lag the trend in job growth. He also said the unemployment rate could rise further, but a significant increase isn’t needed to get inflation back to the 2% target.

A Collective Sigh of Relief As The BoC Cut Rates For the First Time in 27 Months

With continued evidence that underlying inflation is easing, the Governing Council agreed that monetary policy no longer needs to be as restrictive. Recent data has increased our confidence that inflation will continue to move towards the 2% target. Nonetheless, risks to the inflation outlook remain. “Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”

As shown in the second chart below, the nominal overnight rate remains 215 basis points above the current median CPI inflation rate, which shows how restrictive monetary policy remains. The average of this measure of real (inflation-adjusted) interest rates in the past 30 years is just 60 bps. The overnight rate is headed for 3.0% by the end of next year.

There are four more policy decision meetings before the end of this year. It wouldn’t surprise me to see at least three more quarter-point rate cuts this year. While the overnight rate is likely headed for 3.0%, it will remain well above the pre-COVID overnight rate of 1.75% as inflation trends towards 2%+ rather than the sub-2% average in the decade before COVID-19.