09:05 AM EDT, 07/05/2024 (MT Newswires) -- Statistics Canada Friday reported in its Labour Force Survey (LFS) that 1,400 jobs were lost during June, pushing the unemployment rate up two ticks to 6.4%, noted Desjardins.

That was a materially weaker outcome than what was expected by economists, stated the bank. The jobless rate is now 1.6%-points higher than the trough seen in July 2022.

The latest increase is the result of still-strong population growth and a lack of further hiring, pointed out the bank. Job losses were concentrated in the services sector. Total hours worked declined 0.4% in June, which will put early gross domestic product (GDP) tracking estimates for the month on a weaker footing.

Wages grew at a faster pace, but that's due to a range of factors. Average hourly earnings accelerated from an annual pace of 5.1% to 5.4% in June. That likely in part reflects the impact of labor negotiations helping workers make up lost purchasing power, but that's a lagged indicator and not sustainable given the weakness seen in hiring, according to Desjardins.

In addition, the advance in average hourly earnings over the past year for the bottom 25% of the wage distribution of 4.2% is well below the 6.9% seen in the top 25%, meaning those who are most likely to spend additional incomes aren't seeing particularly strong gains.

The sharp rise in the unemployment rate will have many questioning whether Canada has entered a recession, added the bank. While it will take time to answer that, it's clear that the Bank of Canada (BoC) should continue its rate-cutting cycle in July.

Desjardins sees the Canadian central bank lowering rates by 25bps at its next announcement date, with another two rate cuts expected in the three meetings after. Lowering interest rates is the only way to soften the blow from upcoming mortgage renewals and keep any hope of a soft landing alive.

Financial markets have moved to price in more rate cuts after the release, but the bank expects that there's still further to go on that front, assuming that the upcoming inflation reading looks cooler than the last one.