Bank of Canada April rate cut still in play as job market weakens

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Canada’s economy lost jobs in March for the first time since January 2022, with the unemployment rate rising to 6.7 per cent from 6.6 per cent the month before, Statistics Canada said Friday.

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The economy gave up 33,000 positions last month, missing analysts’ estimates of a more modest 10,000 jobs lost. However, their unemployment rate prediction was correct.

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The jobless rate still sits below its recent high of 6.9 per cent in November 2024, but Statistics Canada said the rate has been trending higher since March 2023, when it stood at five per cent.

“Since March 2024, the unemployment rate has remained above its pre-COVID-19 pandemic average of six per cent (from 2017 to 2019),” the agency said in the release, adding it is taking longer for unemployed people to find work.

Here’s what economists think the latest employment data means for the economy, the Bank of Canada and interest rates.

Full-time jobs hit hard: Bank of Montreal

The March data signalled that “the widespread decline in business (and consumer) sentiment in the past two months played out in real decisions last month,” Douglas Porter, chief economist at BMO Capital Markets, said in a note on Friday.

Full-time and private-sector positions took the brunt of the hit, with the former falling by what he called a “heavy 62,000.”

Porter said the unemployment rate would have chugged even higher had the participation rate not fallen.

He pointed to the increase in hours worked as one potential bright spot, but he interpreted it to mean that employers asked people to work longer hours rather than adding to their payrolls.

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Porter thinks it’s too early to directly attribute the losses to U.S. tariffs, especially since the survey was taken prior to steel and aluminum duties coming into effect on March 12.

However, he does think the regional data tells the tale of the coming impact of tariffs, pointing to job losses in Ontario, Quebec and Manitoba. Alberta also lost positions.

“Ultimately, we believe that Ontario is most at risk from U.S. protectionism, and its jobless rate rose two ticks to 7.5 per cent,” he said.

He said he thinks the Bank of Canada will want to see more data before it implements another rate cut.

Policymakers “made it clear” following the interest rate cut in March that the only reason they did so was in response to United States President Donald Trump’s tariff threats.

“Falling energy prices and the end of the carbon tax will help dampen inflation pressures,” taking some pressure off the Bank of Canada, Porter said. However, poor employment numbers and slumping stock markets will “keep prospects of an April rate cut very much alive.”

For now, BMO is calling for the Bank of Canada to hold off on further rate cuts, “but the situation is, shall we say, fluid.”

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Higher jobless rate on the way: Capital Economics

“The broad-based weakness in last month’s Labour Force Survey does not bode well for the outlook,” Bradley Saunders, North America economist at Capital Economics Ltd., said in a note, adding that theory is supported by surveys showing company hiring intentions have “sharply” fallen.

He said U.S. tariffs played a role in some of March’s job losses, attributing the 7,000 drop in manufacturing positions to Trump’s upending of trade routes and norms, but that is just the tip of the iceberg.

“While Canadian exporters may have escaped ‘Liberation Day’ relatively unscathed, we still expect U.S. tariffs to weigh on GDP growth — and, in turn, hiring — this year,” he said.

Saunders pointed to carmaker Stellantis NV’s decision to close its auto plant in Windsor, Ont., for at least two weeks starting Monday, which will affect 4,000 positions, as “evidence of the uncertainty that U.S. tariffs will pose for Canadian manufacturers going forward.”

Capital Economics thinks the unemployment rate will rise to seven per cent and that economic weakness will force the Bank of Canada to cut interest rates at the upcoming announcement on April 16.

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‘Vast fluctuations’: RSM Canada

“Trade uncertainty is causing vast fluctuations in job numbers,” Tu Nguyen, an economist at tax consultancy RSM Canada LLP, said in a note.

Employment in Canada “fluctuated” earlier in the year as employers added positions to get ahead of the coming tariff storm.

“However, now that many tariffs are in place, the trend in the upcoming months is more layoffs and unemployment as tariffs cause widespread economic pain,” she said.

Nguyen expects this to especially be the case in trade-dependent sectors such as wholesale and retail, manufacturing, especially auto production, and steel and aluminum, with 25 per cent tariffs now in force in the automotive and the steel and aluminum sectors.

“Weariness about the macroeconomy and recession fears, including that of a global recession, will cause layoffs and delays in hiring across sectors,” she said.

Given that the extent of the job losses in March was a surprise, she said the Bank of Canada might feel compelled to cut rates by another 25 basis points to 2.5 per cent in April, even though Canada missed the reciprocal tariff bullet.

• Email: gmvsuhanic@postmedia.com

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