Canada job gains mask weakness, Macquarie says

Investing.com -- Canada posted a modest employment gain in April, but the underlying softness in the labor market points to rising odds of a rate cut by the Bank of Canada as early as June, according to Macquarie strategist David Doyle. “This report increases the likelihood of further near-term BoC easing,” Doyle wrote in a note Friday.

Headline employment rose by just 7,400, driven largely by a 37,000-job increase in public administration tied to temporary hiring for the federal election. Macquarie cautioned that these gains “are likely to unwind when the figures for May are released.”

Despite the uptick in jobs, the unemployment rate climbed to 6.9%, its highest since November 2024. The employment rate among core working-age Canadians fell to its lowest point since August 2021, highlighting deeper stress in the labor force.

“Weakness persists as the trade war weighs,” Macquarie said, pointing to declines in manufacturing (-31K) and wholesale and retail trade (-27K) as signs that broader business sentiment is deteriorating. Nine of 16 major sectors still reported gains, with strength in finance and real estate (+24K), but it’s not enough to offset losses elsewhere.

Private wage growth fell sharply to 2.8% year-over-year, the lowest reading since October 2021. “Wage growth has moderated in aggregate, but is still being boosted by public sector industries,” Doyle noted.

Financial markets responded swiftly, with the OIS curve pricing in a 60%–65% chance of a 25-basis-point cut at the Bank of Canada’s June 4 meeting, up from 45% the day prior. “Our own view is that this will push the BoC to ease in June by 25 bps,” Doyle wrote.

Macquarie now anticipates a total of 75 basis points in rate reductions before year-end, bringing the overnight rate to 2.0%. The timing of further action may hinge on upcoming economic data, including April CPI on May 20 and Q1 GDP on May 30.

Beyond short-term data, structural headwinds continue to cloud Canada’s outlook. Doyle cited the immigration policy reversal, mortgage rate resets, and trade tensions with the U.S. as major drags on employment and investment going forward.