Synopsis:

CIBC observes a continued stall in Canadian employment during July, leading to expectations of three more 25bp rate cuts by the Bank of Canada (BoC) this year.

Key Points:

1. Employment Data:

   • Stalled Job Growth: Canadian employment declined by 3K in July, falling short of the consensus expectation of a 25K increase and following a similar weak performance in June.
   • Unemployment Rate: The unemployment rate held steady at 6.4%, primarily due to a three-tick drop in the participation rate (from 65.3% to 65.0%). This decline in participation, especially among young people, suggests discouragement due to limited job opportunities.
   • Mixed Job Details: While full-time employment increased by 62K, part-time jobs fell by 64K. Despite this, hours worked rose by 1.0%, indicating a positive contribution to July's GDP.
   • Wage Growth: Wage growth for permanent employees decelerated to 5.2% year-over-year from 5.6%, though this slowdown was less than expected (consensus 4.8%).

2. Bank of Canada Outlook:

   • Policy Concerns: The BoC minutes from the previous policy decision highlighted concerns over the labor market, and the latest data reinforces these worries.
   • Rate Cut Expectations: CIBC now expects the BoC to implement three more 25bp rate cuts in the remaining policy meetings this year, reflecting the continued softness in the labor market.

Conclusion:

CIBC notes the ongoing weakness in Canadian employment, which, combined with other economic indicators, leads them to predict that the BoC will cut rates three more times in 2024. The persistence of labor market challenges, particularly the decline in participation and mixed job details, supports this dovish outlook.