The Canadian labor market is experiencing weakness as the unemployment rate has risen for the third consecutive month, providing some evidence that the economy is finally slowing down.

The Canadian Statistics Agency reported today, Friday, that employment has not changed much in July, decreasing by 6,400 jobs. Meanwhile, the unemployment rate rose to 5.5 percent as the economy struggles to create enough jobs to keep up with the pace of population growth.

The federal agency stated that last month's job losses were led by the construction industry, while the largest job gains were achieved in healthcare and social assistance.

The unemployment rate also increased for the first time in nine months. Previously, the rate hovered around 5 percent, slightly above its all-time low of 4.9 percent reached last summer.

As population growth in Canada continues rapidly, the rising unemployment rates indicate that the economy is not creating enough jobs to accommodate a larger workforce.

Job vacancies in the country have also decreased, providing another sign that the labor market is beginning to loosen.

James Orlando, the director of economics at TD, stated that high population growth helps the economy stay on its feet with increased demand for newcomers. So, instead of rising interest rates leading to outright job losses, Orlando said that the unemployment rate is rising.

The Canadian economy has exceeded expectations this year, prompting the Bank of Canada to raise interest rates again in both June and July.

By raising the borrowing costs for consumers and businesses, the central bank hopes to slow the economy enough to bring inflation back to its target of 2 percent.

Additionally, with the central bank's key interest rate now at 5 percent - its highest level since 2001 - all eyes are on what will be done in September, as Orlando noted that economic forecasts suggest the Bank of Canada does not need to raise interest rates again next month.

Updated forecasts from TD indicated that the economy will continue to slow, raising the unemployment rate to 6.5 percent in the fourth quarter of 2024.

The chief economist at BMO, Douglas Porter, agreed that the chances of raising the interest rate in September are decreasing.

However, with price pressures and wage growth continuing to rise, Porter said rates may remain high for a long time.

The inflation rate decreased to 2.8 percent in June, within the Bank of Canada's target range of 1 to 3 percent. But the core inflation measures that exclude volatility show that prices are still rising quickly, and new forecasts from the central bank suggest that it expects inflation to return to 2 percent by mid-2025.

The central bank has expressed concerns about the pace of wage growth, indicating that rapid wage gains will make it difficult to bring inflation back to target.

But Orlando stated that wage growth is a "lagging indicator," meaning that workers are receiving wage increases to reflect the rapid rise in inflation that has already occurred. However, the decreased job vacancies and rising unemployment suggest that high wage growth will not continue.