Canada's labour market showed further signs of weakening last month, a development that only adds to the Bank of Canada's conundrum: wrestling with a softening economy on one side and stubborn inflationary pressure on the other.
Statistics Canada said the country shed 17,700 jobs in April, pushing the national unemployment rate to 6.9%. That marks its highest level since last October, and the figures landed well below consensus expectations of a 10,000-job gain.
The news also arrived at a moment when the BoC is already navigating the dual drag of US tariffs and oil price pressure from the ongoing Middle East conflict, a reality it referenced heavily in its last decision on interest rates.
A labour market in retreat
Normally, a sluggish labour market might strengthen the case for Bank of Canada rate cuts – and by most accounts, this report indicated the economy is sagging.
"It's an interesting report," Servus Credit Union chief economist Charles St-Arnaud (pictured top) told Canadian Mortgage Professional. "It shows that the labour market in Canada is not doing well. It's on the weaker side."
The latest figures mean Canada has now lost roughly 112,000 jobs this year, he said, although he views some of what's happening now as a statistical correction from an outsized gain in September, October, and November of nearly 180,000 positions.
But the picture is still concerning. "Even if you were to even it out, on average over the past 12 months, we're barely adding jobs," he added. "The underlying is still very soft."
Cut, hold, or hike? A big choice awaits the BoC
The Bank's next decision on rates is scheduled for June 10, with most economists forecasting a prolonged rate hold as it weighs up the inflation-versus-economy question.
Could the April labour market data give decisionmakers cause to consider a cut between now and the end of the year?
St-Arnaud said the central bank is "juggling really conflicting forces," even if elevated energy prices aren't feeding into broader inflation just yet.
For now, he sees the Bank's preference tilted towards keeping rates unchanged, although its bias may have shifted. Before the latest report, signals from BoC governor Tiff Macklem – both at last week's rate decision and in appearances before Parliament – suggested that the Bank was leaning towards a hike, driven by inflation concerns.
That may no longer be the case. "What's going on now? Maybe they're feeling more neutral," he said.
But a cut still seems a distant prospect. St-Arnaud said meaningful additional weakness in the domestic economy would have to emerge, coupled with some easing in energy prices, in the months ahead.
"At the end of the day, we have to remember that their primary objective is inflation," he said. "If they have to choose between supporting growth and inflation, their mandate tells them that they need to put more emphasis on inflation."
What's more, a rate hike – which financial markets have viewed as a distinct possibility amid the Iran war chaos – isn't entirely off the table either despite the economy's mediocre performance.
A prolonged conflict would bump the chances of a rate increase higher, according to St-Arnaud. "The longer we have higher energy costs, higher transportation costs, more of that is going to be passed to consumers," he said, "and that's when we're going to start to see a broadening of inflationary pressure."
For now, economists still see the Bank leaving its benchmark rate unchanged as the most likely outcome of its upcoming decisions.
CIBC's Andrew Grantham said the labour market's continued softness undermines the case for the Bank of Canada to respond to the oil price shock with tighter policy, while BMO chief economist Doug Porter called it "incredibly tough" to see the logic behind financial markets expecting at least one hike in 2026.
St-Arnaud said mortgage market watchers should be keeping an eye on upcoming inflation data, rather than any communications from the central bank, as a gauge of where rates could be headed.
"The inflation numbers are going to be way more important – seeing what's happening under the hood, trying to start to see a broadening of those inflationary pressures," he said. "That will be what I'll be watching for more than what the Bank of Canada is saying."
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