Canada's job market displayed notable improvement in July, adding a substantial 75,000 jobs. Despite this positive trend, economists remark that the road to recovery remains lengthy before the Bank of Canada contemplates tightening its monetary policy.

According to Statistics Canada, the unemployment rate dropped to its lowest in two years, falling to 6.4 percent. Economists participating in a Reuters poll had anticipated a mere 15,000 job gain prior to this report.

The job growth observed in July was diverse, encompassing both full-time and part-time employment opportunities. Ontario, in particular, contributed significantly to this figure by adding 52,000 jobs. Overall, the country has experienced an increase of 181,000 jobs since April and a rise of 196,000 positions over the last year.

Andrew Grantham, a senior economist at CIBC, noted, “It’s stronger growth than we were maybe anticipating a few months ago.” He emphasized that this job growth aligns with GDP figures suggesting that the Canadian economy is on the mend. However, he indicated that more slack exists in the economy, implying the need for continued recovery before concerns about potential interest rate hikes by the Bank of Canada become relevant.

Statistics Canada highlighted a half-percentage-point decrease in the unemployment rate compared to a year prior, attributing this positive change to the success of more job-seekers finding employment than in the previous year. Nevertheless, RBC’s assistant chief economist, Nathan Janzen, cautioned that “the labour market is not yet strong,” noting that the unemployment rate remains higher than pre-recession levels, and wage growth saw a slowdown in July.

Average hourly wages rose by 2.8 percent year-over-year in July; however, this growth decelerated from a 3.3 percent increase recorded in June. Much of the job growth in July was driven by gains in the wholesale and retail trade sectors, which saw an addition of 21,000 jobs. Despite this, the sector remains down by 50,000 jobs compared to the previous year.

In addition, the finance, insurance, real estate, rental, and leasing sectors contributed 18,000 new jobs last month, while professional, scientific, and technical services added 17,000 jobs. On the other hand, the public administration sector observed a decline, shedding 15,000 positions, and the agricultural sector lost 9,600 jobs during the same period.

Royce Mendes, managing director at Desjardins, remarked that the labour market faces a long journey toward full recovery. He stated, “The latest jobs numbers add to the evidence that businesses are finding ways to navigate the current trade-related uncertainty,” and suggested that an interest rate hike by the Bank of Canada is unlikely until 2027.

Moreover, Mendes pointed out that despite the substantial gains in July, the labour market has not returned to optimal health, citing that the annual pace of wage growth has slowed to align closely with the current rate of inflation.

The Bank of Canada has maintained its key policy rate at 2.25 percent for the sixth consecutive time during its mid-July meeting. According to LSEG Data & Analytics, there is approximately a 96 percent chance that the central bank will decide to hold steady at its upcoming meeting on September 2.

Among young people, the unemployment rate remained nearly unchanged in July at 12.6 percent, although this represents a 1.9 percentage point decline from the same month last year. Grantham remarked, “This is definitely a better summer than what we’ve seen in the last two years for young people trying to find jobs.”