Recent employment data is pointing to a weaker labour market than the Bank of Canada appears to be seeing — as that weakness filters through to wages, the central bank will be prompted to cut rates once again, says National Bank Financial Inc. (NBF).
In a new report, NBF noted that, while it wasn’t a surprise that the Bank of Canada kept rates unchanged this week, it’s still expecting another 50 basis points in rate cuts by the end of the year.
Key to that call is the evolving labour market, and its impact on inflation.
As it stands, the Bank of Canada has highlighted the fact that recent job losses remain limited to sectors that are being hard hit by trade-related disruptions, it noted.
“While the central bank acknowledges that several labour market indicators point to growing slack, it continues to play down the severity of the weakness,” NBF noted.
However, there are signs in the recent data that the job market is deteriorating.
Indeed, the report noted that the closely-watched Labour Force Survey data overestimates employment, “for methodological reasons,” whereas the payrolls data is pointing to, “a much weaker labour market.”
And, NBF said that, in the current environment, it believes that the payrolls data is providing, “a more accurate assessment of employment trends … and points to widespread weakness in the private sector.”
In turn, this weakness is also translating into slower wage growth, it said.
“The annual change in private sector hourly wages is now only 3.1%, due to an annualized rate of just 0.5% over the last six months,” it said.
“Combined with a relatively strong dollar, this allows us to be optimistic about a moderation in inflationary pressures,” the report noted — and, as a result, it continues to expect 50 bps in cuts to come this year.