The odds of a June interest rate cut from the Bank of Canada (BoC) have eased after Statistics Canada’s latest labour force survey showed employment rose by 90,000 in April. That gain considerably surpassed expectations and marked the largest monthly increase in more than a year.
The unemployment rate in Canada
Statistics Canada reported the unemployment rate held steady at 6.1% in April. The headline employment increase was driven largely by part-time work, and the surge surprised many economists. James Orlando, TD’s director of economics, described the result as a “real shocker,” saying the number was well outside most forecasts.
The April increase was the largest month-over-month gain since January 2023, highlighting a stronger-than-expected labour market at the start of the second quarter.
What investors and economists are watching
Economists had broadly expected the Bank of Canada to begin trimming its policy rate in June or July, given recent progress on inflation. The BoC has signalled it is moving closer to a rate cut, but surprising strength in the labour market has pushed markets to re-evaluate the timing.
TD still expects the first rate cut in July; Orlando says delaying until July would give the central bank more confidence it is not easing policy prematurely and allow it to confirm that stronger employment doesn’t rekindle inflation. He warned that stronger momentum in the second quarter could lead to higher consumer spending, which the BoC will want to monitor closely.
By contrast, BMO chief economist Douglas Porter noted the labour report gives the BoC “some pause” but also observed the bank may emphasise longer-term trends that point to rising economic slack. BMO continues to see the first cut coming in June, though Porter cautioned that would depend on a clear improvement in upcoming inflation data.
Bank of Canada governor Tiff Macklem has repeatedly emphasised the importance of trends rather than reacting to any single strong or weak report. While one hot jobs number complicates the near-term outlook, broader indicators remain crucial to the policy decision.
Canada’s jobless rate and employment details
The April jobs gain was concentrated in several sectors: professional, scientific and technical services; accommodation and food services; health care and social assistance; and natural resources. The utilities industry saw employment decline. Average wage growth moderated, slowing to an annual pace of 4.7% in April from 5.1% in March.
The broader economic picture
Higher interest rates have clearly weighed on economic growth and the labour market over the past year. Population growth has outpaced job creation, which contributed to the unemployment rate rising by about one percentage point over the past year. Statistics Canada also noted that unemployment is higher across all major demographic groups compared with a year ago, with youth experiencing the largest increase.
Despite the recent employment bounce, many indicators still point to a cooling economy. Core measures of inflation, which exclude volatile components, have continued to trend downwards. Canada’s inflation rate was 2.9% in March, inside the Bank of Canada’s 1%–3% target range.
What will determine the timing of a rate cut
Economists say the April inflation report will be a key determinant of whether the Bank of Canada moves in June. If inflation shows another clear downward step, that could open the door to an earlier cut. But the BoC will take a holistic view: it needs confidence that any decline in inflation is durable and not undone by a rebound in economic activity.
The Bank of Canada’s next interest-rate announcement is scheduled for June 5. Its policy rate currently sits at 5%, the highest level since 2001, and policymakers will weigh the recent employment surprise alongside inflation trends and broader measures of economic slack before deciding on the timing of any rate reduction.