In April, Canada’s labor market began to exhibit signs of strain as the initial effects of the tariff conflict with the United States became evident in economic indicators. Economists predict that this weakness may continue throughout the summer amid an unpredictable trade war, with some suggesting it could prompt the Bank of Canada to consider an interest rate reduction in June. According to Statistics Canada, the national unemployment rate increased by two-tenths of a percentage point to 6.9 percent in April, returning to a recent high observed in November.
BMO’s chief economist, Doug Porter, remarked in a client note that this initial major data release for April indicates that tariffs are already significantly impacting the economy. The manufacturing sector led the job losses in April, with a reduction of 31,000 positions, primarily affecting Ontario. Additionally, the wholesale and retail trade sector experienced a loss of approximately 27,000 jobs. These losses followed the imposition of tariffs by the United States in March on non-CUSMA compliant imports from Canada, along with specific levies on steel, aluminum, and automobiles.
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Windsor, Ontario, which is heavily reliant on manufacturing, saw its unemployment rate rise by 1.4 percentage points to 10.7 percent last month, as noted by StatCan. Nathan Janzen, assistant chief economist at RBC, stated in an interview that while local employment data can be subject to fluctuations, a decline is anticipated in areas heavily dependent on trade-sensitive industries such as auto manufacturing. StatCan reported that the April data reflected the first notable decrease in manufacturing jobs since November, although employment levels in the sector remain stable year-over-year.
Despite the economy adding 7,400 net new jobs in April, the increasing unemployment rate indicates that hiring was not keeping pace with the growth of Canada’s population. This marks a shift from earlier in the year when robust employment gains were aligned with a slowdown in population growth.
Statistics Canada reported that the average hourly wage increased by 3.4 percent in April, a slight decrease from the 3.6 percent rise observed in March. Janzen noted some positive developments, including a rise in total hours worked. Although RBC anticipates that unemployment will continue to rise in the upcoming months, peaking at 7.1 percent this summer, Janzen believes that the underlying fundamentals are strong enough to prevent a total collapse of the labor market.
He stated, ‘We expect the unemployment rate to gradually increase over the summer, but we do not foresee a complete downturn in the labor market.’ This outlook is, however, heavily dependent on the absence of further escalations in U.S. tariff policies. Despite the economic uncertainties associated with the U.S. trade conflict, a significant majority of workers reported feeling secure in their employment. Approximately 73.9 percent of workers aged 15-69 disagreed with the notion that they might lose their job within the next six months, although the concern was more pronounced among those in export-dependent industries.
The job statistics for April represent the final assessment the Bank of Canada will receive regarding the labor market’s condition prior to its interest rate decision scheduled for June 4. Last month, the central bank maintained its benchmark rate at 2.75 percent, halting a series of seven consecutive cuts as it awaited further clarity on the developments of Canada’s trade dispute with the United States. Ali Jaffery, a senior economist at CIBC, indicated in a report that the recent jobs data bolsters the argument for a return to rate cuts in June. ‘Overall, we are witnessing a job market that was already weak before the trade war, and it now appears poised to falter,’ Jaffery remarked. Porter supported this perspective, suggesting that the likelihood of a quarter-point cut in June has increased. As of early Friday afternoon, financial markets were estimating a 64 percent probability of a 25-basis-point cut from the central bank in June, according to LSEG Data & Analytics.
Holt said he doesn’t believe the April jobs report will change the math for the Bank of Canada — in part because of the “messy” data, and in part because significant uncertainty still remains on the trade and fiscal fronts.
Janzen said signs of weakness in the labour market on their own aren’t enough to warrant a lower policy rate from the Bank of Canada right now. He said the central bank has signalled that it can’t address weakness tied to the trade war on its own, and that there’s a larger role for fiscal policy to play in stimulus than monetary policy.
That said, Janzen also expects a quarter-point cut in June as a weaker labour market sets conditions for lower inflation in the months ahead. – “It lowers the bar to potentially cutting rates a bit further.”