It is disappointing that the Bank of Canada left the Bank Rate unchanged today at 3%. Many economists had expected a quarter point interest rate cut today, on top of the half point cut announced on April 22nd.
The job market has clearly continued to weaken over the past two months because of the high Canadian dollar and the manufacturing and forestry jobs crisis.
Recent data show that Canada’s economy shrunk by 0.1% in the first quarter, indicating that we may well have entered a recession. Economic growth in the first quarter was even weaker than in the US.
The labour force data for the past two months – not available when the Bank of Canada last set interest rates – show that we have lost 12,000 full-time jobs since March, and that the number of unemployed workers has risen by 18,000.
Most disturbingly, the youth unemployment rate has jumped from 11.0% to 11.9% showing that jobs are now getting very hard to find for those entering the labour force or losing their current jobs.
Meanwhile, the core inflation is running at 1.5%, well below the Bank of Canada’s 2% target, and there are clear signs of a further weakening of exports and the housing market.