Blockbuster jobs growth unlikely to push Bank of Canada off sidelines

National Bank of Canada economists Matthieu Arseneau and Alexandra Ducharme emphasize Canada's strong July labour market data, which included 75.1K jobs added, a decreasing unemployment rate and heightened private-sector hiring. They acknowledge robust economic momentum and easing wage pressures, but caution against premature rate hikes by the Bank of Canada due to persistent excess labour supply and temporary employment.

July's Labour Force Survey (LFS) data reveal ongoing strength in the Canadian economy as Q3 commences; Q2 GDP growth of about 3.0% contributed to labour market recovery, resulting in an impressive 75K job increase and a 0.6% rise in hours worked. The private sector drove this expansion, adding 58K jobs. Over three months, businesses expanded their workforce by 146K, the highest increase in three years.

Despite a historically excess labour supply (unemployment rates between 6.5% and 7.0%), wage pressures remain contained. Our labour market assessment suggests that the risks of second-round inflation effects from rising energy prices are limited in Canada compared to other advanced economies. We maintain this belief. Therefore, given the current context, we do not advocate an immediate rate increase.

Firstly, the labour market was artificially maintained by temporary factors such as the census and a tourism boom post-FIFA World Cup. These factors may not be sustainable in the long term.