Surprisingly strong June jobs numbers quash Bank of Canada rate cut odds

OTTAWA — The Bank of Canada is increasingly expected to keep its benchmark interest rate on hold later this month after the labour market delivered a surprise hiring surge in June.

Statistics Canada said Friday that the unemployment rate dropped a tenth of a percentage point to 6.9 per cent in June as the economy added some 83,000 jobs.

The vast majority of those jobs were part-time, the agency said.

A Reuters poll of economists heading into Friday’s release had expected the jobless rate would rise to 7.1 per cent in June as employment levels held flat.

Katherine Judge, senior economist at CIBC, said in an interview that while StatCan’s labour force survey is known to be volatile, the details of the report suggest there’s some resilience in the Canadian jobs market despite tariff pressure from the United States.

“You just can’t really ignore all of these signals that are very strong,” she said.

The June figures buck the recent slowdown in the labour market. Last month was the first significant job gain since January and snapped a streak of three consecutive months where the unemployment rate rose.

TD Bank senior economist Leslie Preston said in a note to clients Friday that one month of job gains doesn’t change the fact that the labour market is much cooler than it was a year ago.

U.S. President Donald Trump’s threat on Thursday to impose 35 per cent tariffs on Canadian goods starting Aug. 1 also reflects the fraught landscape for businesses, Preston said.

The Bank of Canada will be parsing the labour figures closely as it prepares for its next interest rate decision on July 30.

The central bank has kept its benchmark rate on hold at 2.75 per cent in two consecutive decisions as it awaits more clarity on how the trade disruption will affect the economy.

CIBC had a return to interest rate cuts pencilled in later this month, but Judge said the June jobs data led to a change in its call.

“Given how strong this labour market data is, we’re no longer expecting a July cut from the Bank of Canada,” she said.

As of noon on Friday, financial markets were pricing odds of just 13 per cent for a quarter-point rate cut at the central bank’s July decision, according to LSEG Data & Analytics.

Judge said CIBC is still expecting a pair of additional interest rate cuts to come this year with the jobless rate still elevated. She also expects the full impact of tariffs hasn’t hit the economy yet.

“I think there still is an argument for Bank of Canada cuts, obviously, but we’ve just pushed back the timing,” Judge said.

Preston said TD Bank also still sees room for rate cuts but argued that next week’s June inflation report from StatCan will have a bigger say in whether the central bank returns to cuts or not.

Benjamin Reitzes, BMO’s managing director of Canadian rates and macro strategist, said in a note that while he is “skeptical” of the strong report given the uncertainty hanging over the economy, the June jobs figures were “pretty decent overall.”

He said he expects the Bank of Canada will remain on the sidelines at its next decision, barring a sharp decline in underlying inflation next week.

Judge said that normally she would put more weight on the inflation data ahead of the jobs figures, but the strength of the June labour report has changed that equation.

She said a surprise slowdown in the consumer price index is unlikely, given economists are still waiting to see the impact of tariffs materialize in the price data.

“I think there’s very little chance that next week’s CPI report could actually now convince them to cut based on what we’ve just seen in the jobs data,” she said.

The wholesale and retail trade industry led employment growth in June with 34,000 new positions, followed by health care and social assistance with 17,000 jobs added. Only the agriculture sector faced notable job losses with 6,000 positions shed, StatCan said, while other industries saw little change.

Even the manufacturing sector, which has faced job losses in recent months amid Canada’s tariff dispute with the United States, saw a gain of 10,000 positions in June.

Tariff pressures are continuing to bite in trade-heavy markets like Windsor, Ont., which StatCan noted has the highest unemployment rate of all census metropolitan areas at 11.2 per cent. Alberta, Manitoba, Ontario and Quebec all posted job growth in June.

The unemployment rate for returning students – those heading back to school in the fall – remained elevated at 17.4 per cent in June. That’s up from 15.8 per cent in the same month last year but down slightly from 20.1 per cent in May, which marked the start of the summer jobs season.

StatCan said average annual wages rose 3.2 per cent in June, cooling slightly from 3.4 per cent in May.

This report by The Canadian Press was first published July 11, 2025.

Craig Lord, The Canadian Press