Canada Job Market Runs Hot as Unemployment Falls to 9-Year Low

(Bloomberg) -- Canada's labor market continued its stellar performance in July, with the jobless rate falling to the lowest since before the financial crisis.

The unemployment rate fell to 6.3 percent, the lowest since October 2008, as the labor market added another 10,900 jobs during the month, Statistics Canada reported from Ottawa. The total increase over the past year of 387,600 is the biggest 12-month gain since 2007.

The jobs figures will bolster confidence the country is quickly running out of economic slack and higher Bank of Canada interest rates may be needed to cool off growth, even with a separate report out Friday showing the country's trade sector disappointed in June. The central bank already raised rates last month, and investors are pricing in at least least one more hike by the end of this year.

“The tight jobless rate will keep chatter alive about an October rate hike,” Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, said in a note to investors.

Canada's dollar fell 0.3 percent to C$1.2628 against its U.S. counterpart at 8:56 a.m. Toronto time. The greenback's strength reflected a solid U.S. jobs report, with payrolls climbing by 209,000 and the jobless rate matching a 16-year low. Canada's currency is still up 6.4 percent this year.

Two-year government bond yields rose 2 basis points to 1.25 percent, and the 10-year yield climbed 4 points to 1.93 percent. Traders were pricing in 64 percent odds of a Bank of Canada interest rate increase in October, versus 60 percent yesterday.

A separate trade report showed a pullback in June for exports, down 4.3 percent during the month and a trade deficit of C$3.6 billion that was the widest since September 2016. Economists had forecast a 12,500 increase in employment for July, and a C$1.25 billion June trade deficit.

Hours Worked

While the job gain in July was lower than the average over the previous few months, the numbers show a healthy labor market.

• The bulk of the gains over the past year have been full -time, with 353,500 jobs. In July, the economy created 35,100 full-time jobs while dropping 24,300 part-time jobs

• The full-time job gains means the total number of hours worked -- a key determinant of income -- are also accelerating. Total actual hours worked were up 1.9 percent in July from a year earlier, the fastest year-over-year gain since August 2015

Wages continue to rise at historically low levels, which continues to be the main wrinkle in the country's labor market. The pace of annual wage rate increases was unchanged at 1.3 percent in July. That's still better than the record low 0.7 percent in April

The decline in the jobless rate was also due in part to a lower participation rate, which fell to 65.7 percent, from 65.9 percent, as people left the labor force.

--With assistance from Erik Hertzberg

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net.

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Chris Fournier