The yield on Canadian government bonds for 10 years dropped to 3.14% after employment in Canada fell by 2.8 thousand jobs in July 2024, following a decrease of 1.4 thousand jobs in the previous month and much lower than expectations of an increase of 22.5 thousand jobs.

Canada Bond Yield

The rise in Canada bond yields paused after reaching 3.2% on August 8, retreating slightly driven by increasing expectations for a dovish stance from the Bank of Canada following weak labor data, while the unemployment rate in Canada remained steady at 6.4%, the highest level in over two and a half years.

Weak Labor Market

Despite falling slightly short of market expectations, the data still indicates a weak labor market, with net employment declining for the second consecutive month and the labor force participation reaching its lowest level since 1998, excluding disruptions from the pandemic.

Manufacturing

Additionally, the ongoing contraction in the manufacturing sector and sluggish economic growth has raised expectations for continued rate cuts by the Bank of Canada, which has constrained support for yields.

Canadian Dollar

The Canadian dollar traded at 1.374 against the U.S. dollar, halting the rise that boosted the Canadian dollar to 1.37 on August 8, as the weak employment data aligned with the Bank of Canada's dovish outlook. The unemployment rate in Canada remained at 6.4%, the highest level in over two and a half years.

Market Expectations

While this figure was below market expectations, it still indicates weakness in the labor market as net employment unexpectedly fell for the second month and the labor force participation rate dropped to its lowest level since 1998 when excluding pandemic-related shocks.

Contraction

Moreover, the ongoing contraction in Canadian manufacturing and modest economic growth has increased the likelihood of further easing by the Bank of Canada, adding pressure on the attractiveness of the Canadian dollar.

Meanwhile, the Federal Reserve has not yet begun a cycle of rate cuts, with mixed expectations for the first reduction in September.

Employment

Employment in Canada decreased by 2.8 thousand jobs marginally in July 2024, following a decline of 1.4 thousand jobs in the previous month and far below the expectations of an increase of 22.5 thousand jobs.

Full-time jobs saw an increase of 62 thousand jobs, while part-time jobs decreased by 64 thousand jobs.

Wholesale and Retail

Wholesale and retail trade experienced declines (-44 thousand jobs; -1.5%) and finance, insurance, real estate, and leasing (-15 thousand jobs; -1%), while there were gains in public administration (+20 thousand jobs; +1.6%) and transportation and warehousing (+15 thousand jobs; +1.4%).

Regionally, jobs in Manitoba declined (-5400 jobs; -0.8%) but rose in Ontario (+22 thousand jobs; +0.3%) and Saskatchewan (+6700 jobs; +1.1%).

Unemployment

The unemployment rate in Canada was 6.4% in July 2024, unchanged from the highest level in January 2022 in the previous month and lower than expectations of 6.5%.

While this was better than market expectations, the result still indicates that the labor market in Canada continued to show the slowdown anticipated by the Board of the Bank of Canada in the latest rate cuts, and net employment decreased by 2800 to 20,513,600, marking the second consecutive decline, sharply contrasting with expectations of an increase of 22,500.

However, the number of unemployed persons dropped by 8600 to 1,398,500 during the period, in line with a 0.3 percentage point drop in the labor force participation rate to its lowest level in over two years at 65%, the lowest level since 1998 excluding pandemic shocks, which prevented a rise in the unemployment rate.

The youth unemployment rate increased (1.3 percentage points to 16%), while remaining relatively stable among young women (12.3%), and slightly decreased among working-age men (-0.3 percentage points to 5.3%) and working-age women (-0.2 percentage points to 4.9%).