Stronger than expected June jobs numbers quash BoC rate cut odds

The Bank of Canada is increasingly expected to keep its benchmark interest rate on hold later this month after the labour market delivered a surprise hiring surge in June.

Statistics Canada said Friday the unemployment rate dropped a tenth of a percentage point to 6.9% in June as the economy added about 83,000 jobs.

The vast majority of those jobs were part-time, the agency said.

A Reuters poll of economists heading into Friday’s release had expected the jobless rate to rise to 7.1% in June as employment levels held flat.

Katherine Judge, senior economist at CIBC, said in an interview that while Statistics Canada’s labour force survey is known to be volatile, the details of the report suggest there’s some resilience in the Canadian jobs market despite tariff pressure from the United States.

“You just can’t really ignore all of these signals that are very strong,” she said.

The June figures buck the recent slowdown in the labour market. Last month marked the first significant job gain since January and snapped a streak of three consecutive months in which the unemployment rate rose.

TD Bank senior economist Leslie Preston said in a note to clients Friday that one month of job gains doesn’t change the fact the labour market is much cooler than it was a year ago.

U.S. President Donald Trump’s threat on Thursday to impose 35% tariffs on Canadian goods starting Aug. 1 also reflects the fraught landscape for businesses, Preston said.

The Bank of Canada will be parsing the labour figures closely as it prepares for its next interest rate decision on July 30.

The central bank has held its benchmark rate at 2.75% for two consecutive decisions as it awaits more clarity on how the trade disruption will affect the economy.

CIBC had forecast a return to interest rate cuts later this month, but Judge said the June jobs data led to a change in that call.

“Given how strong this labour market data is, we’re no longer expecting a July cut from the Bank of Canada,” she said.

As of noon Friday, financial markets were pricing odds of just 13% for a quarter-point rate cut at the central bank’s July decision, according to LSEG Data & Analytics.

Judge said CIBC is still expecting a pair of additional interest rate cuts this year, with the jobless rate still elevated. She also expects the full impact of tariffs hasn’t yet hit the economy.

“I think there still is an argument for Bank of Canada cuts, obviously, but we’ve just pushed back the timing,” Judge said.

Preston said TD Bank also still sees room for rate cuts but argued that next week’s June inflation report from Statistics Canada will have a bigger influence on whether the central bank resumes cutting rates.

Benjamin Reitzes, BMO’s managing director of Canadian rates and macro strategy, said in a note that while he is “skeptical” of the strong report given the uncertainty hanging over the economy, the June jobs figures were “pretty decent overall.”

He said he expects the Bank of Canada to remain on the sidelines at its next decision, barring a sharp decline in underlying inflation next week.

Judge said that normally she would put more weight on the inflation data ahead of the jobs figures, but the strength of the June labour report has changed that equation.

She said a surprise slowdown in the consumer price index is unlikely, given economists are still waiting to see the impact of tariffs materialize in the price data.

“I think there’s very little chance that next week’s CPI report could actually now convince them to cut based on what we’ve just seen in the jobs data,” she said.

The wholesale and retail trade industry led employment growth in June with 34,000 new positions, followed by health care and social assistance with 17,000 jobs added. Only the agriculture sector saw notable job losses, with 6,000 positions shed, Statistics Canada said, while other industries saw little change.

Even the manufacturing sector, which has faced job losses in recent months amid Canada’s tariff dispute with the United States, saw a gain of 10,000 positions in June.

Tariff pressures continue to bite in trade-heavy markets like Windsor, Ont., which Statistics Canada noted had the highest unemployment rate of all census metropolitan areas at 11.2%. Alberta, Manitoba, Ontario and Quebec all posted job growth in June.

The unemployment rate for returning students — those heading back to school in the fall — remained elevated at 17.4% in June. That’s up from 15.8% in the same month last year but down slightly from 20.1% in May, which marked the start of the summer jobs season.

Statistics Canada said average annual wages rose 3.2% in June, cooling slightly from 3.4% in May.