Canadian Weak Job Gains in October Keeps Jumbo Rate Cut In Play

Weaker-Than-Expected October Jobs Report Keeps Jumbo Rate Cut In-Play in December

Statistics Canada released October employment data today. The data showed a marked slowdown in job growth, underscoring ongoing labour-market softness that triggered a jumbo rate cut last month. Statistics Canada reported that the country added 14,500 positions in October, missing the median expectation of a 27,200 rise in a Bloomberg survey of economists. This is the smallest employment gain this year and far below the average monthly pace of about 40,000 positions. The jobless rate held steady at 6.5%, beating forecasts of 6.6%.

Friday’s report indicates an economy still creating jobs but with room for more growth. Bank of Canada policymakers cited the weakening in the labour market as a reason to increase the pace of reducing borrowing costs last month. Some market participants foresee a possibility of another 50 bps overnight policy rate cut at this year’s final decision on Dec. 11. Swap markets suggest the odds of a 50-basis point cut next month are about even.

The labour force participation rate decreased slightly—the fourth monthly decline since May—to 64.8%, marking its lowest level since December 1997 (excluding the COVID-19 pandemic period). This decline primarily reflects a drop in students looking for work over the past year.

The employment rate—the proportion of the population aged 15 and older who are employed—decreased by 0.1 percentage points to 60.6% in October, the sixth consecutive monthly decline. Year-over-year, it has dropped by 1.3 percentage points, showing a downward trend from a peak of 62.4% in February 2023, largely due to rising retirements among an aging workforce.

Employment in the private sector remained relatively unchanged in October, following two months of growth totaling 99,000 (+0.7%) in August and September. Public sector employment and self-employment were also virtually unchanged.

Sector-Specific Employment Changes

• Business, Building, and Support Services: Employment rose by 29,000 (+4.2%) in October, marking the first increase since May. Year-over-year, employment in this industry was up by 33,000 (+4.8%).
• Finance, Insurance, Real Estate, Rental, and Leasing: Employment fell by 13,000 (-0.9%) in October, though it was up by 50,000 (+3.6%) on a year-over-year basis.
• Public Administration: Employment dropped by 8,700 (-0.7%) in October after two months of little change.

Regional Employment Changes

• Alberta: Employment rose by 13,000 (+0.5%) in October, with the unemployment rate steady at 7.3% but up 1.4 percentage points from October 2023.
• New Brunswick: Employment increased by 3,300 (+0.8%) in October, with a stable unemployment rate of 6.8%.
• Prince Edward Island: Employment declined by 1,100 (-1.2%), raising the unemployment rate by 2.9 percentage points to 10.0%.
• Quebec and Ontario: Both provinces saw little overall employment change in October, with stable unemployment rates of 5.7% and 6.8%, respectively.

The unemployment rate remained unchanged at 6.5% in October, following a 0.1 percentage point decline in September. Over the year, the unemployment rate increased by 0.8 percentage points, with 193,000 (+15.6%) more people either searching for work or on temporary layoff.

Wage growth for permanent employees accelerated to 4.9% in October, up from 4.5% last month and exceeding the 4.5% rate economists anticipated.

One more jobs report is due before the Dec. 11 rate decision. While Canada’s October labour survey isn’t as downbeat as expected, the downside surprise in hiring will likely support further rate cuts by the BoC as it moves towards a neutral policy stance.

Bottom Line

Economists are divided on whether the Bank of Canada will implement a 25 or 50 basis points rate cut on December 11. The upcoming October inflation data, to be released on Tuesday, November 19, will be crucial, as inflation is expected to remain low though possibly higher than the 1.6% y/y rate from September due to lower gasoline prices. Monetary policy remains restrictive, with the overnight policy rate at 3.75%, well above the inflation rate. Expectations are for the rate to fall to 2.5% by April or June next year, which should continue to boost housing activity, already showing significant growth in October. Full housing data for October will be released next week on Friday, November 15.

All signals point to a likely sharp increase in housing activity by spring, if not sooner.

Source - Dr Sherry Cooper - DLC