Soft Canada Jobs Report Strengthens Rate-Hold Expectations for This Year, According to Reuters

By Ismail Shakil and Steve Scherer

OTTAWA – Canada’s economy added fewer jobs than anticipated in October, with the unemployment rate climbing to a 21-month high of 5.7%. This development suggests that the economy is encountering challenges, possibly indicating that the central bank may pause further interest rate hikes.

Statistics Canada reported a net increase of 17,500 jobs in October. Analysts had predicted an addition of 22,500 jobs, with expectations that the unemployment rate would rise slightly from 5.5% in September to 5.6%.

The average hourly wage for permanent employees, an important metric for the central bank, increased by 5.0% year-over-year, down from 5.3% in September. Royce Mendes, head of macro strategy at Desjardins, noted, "The annual pace of wage growth for permanent employees slowed three ticks to 5.0%. While still inconsistent with the Bank of Canada’s 2% inflation target, this deceleration may suggest that the central bank’s measures are effectively working."

The Bank of Canada has kept interest rates at a 22-year high of 5.0% since last month, following a series of ten rate hikes aimed at bringing inflation back to its target. The annual inflation rate stood at 3.8% in September.

The jobs report’s weaker-than-expected figures come on the heels of data suggesting that Canada likely experienced a mild recession in the third quarter. Additionally, a report from S&P Global indicated that contraction in Canada’s service sector intensified in October, as inflation and higher borrowing costs adversely affected new business activity. Paul Smith, economics director at S&P Global Market Intelligence, commented that Canada’s service sector remained deeply in contraction during October, impacting the overall economy significantly.

Market analysts perceive a minimal chance of a rate hike in December and have begun to anticipate a possible rate cut of 25 basis points by June.

The Canadian dollar showed a minor increase, trading 0.4% higher at 1.3690 against the U.S. dollar.

Doug Porter, chief economist at BMO Capital Markets, stated, "The underlying picture for Canada’s labor market is softening, which is likely to keep the Bank of Canada on the sidelines for the moment. We still view any rate relief as a distant prospect."

The Bank of Canada noted last month that strong wage growth continues to be a factor keeping inflationary pressures elevated. The central bank has projected that inflation will return to its 2% target by the end of 2025, although it highlighted labor market tightness as a risk that could impede this goal.

The unemployment rate has increased four times in the past six months and has reached levels not seen since January 2022. With the job gains seen in October, the economy is now averaging 28,000 new jobs per month in 2023, a slight decrease from the previous month’s average of 30,000. The increase in jobs last month primarily came from part-time positions, which offset a small decline in full-time employment.

Employment in the goods sector rose by a net 7,500 positions, primarily driven by growth in construction jobs. Meanwhile, the services sector saw a gain of 10,000 jobs, largely from the information, culture and recreation fields as well as healthcare and social assistance.