Canada Weak Job Gains Keep Bigger December Cut a Toss-Up

Canada’s economy eked out a small employment increase, underscoring an ongoing labor-market softness that had already convinced the central bank to cut rates at a faster pace.

(Bloomberg) — Canada’s economy eked out a small employment increase, underscoring an ongoing labor-market softness that had already convinced the central bank to cut rates at a faster pace.

Statistics Canada said the country added 14,500 positions in October, which missed a median expectation of a 27,200 rise in a Bloomberg survey of economists.

It’s the smallest gain among the seven months this year when the labor market added jobs, and far below the average monthly pace of about 40,000 positions. The jobless rate held steady at 6.5%, beating 6.6% forecasts. 

Friday’s report showed an economy that’s still creating jobs but has room to churn out more. Bank of Canada policymakers cited weakening in the labor market as a reason to ramp up the pace of reducing borrowing costs last month. Some economists see a possibility of another outsize cut at their next and this year’s final decision on Dec. 11.

Traders seemingly shrugged off the report, with the loonie continuing to trade near a session low of C$1.392 per US dollar and the benchmark 2-year yield down about half a basis point to 3.06% as of 8:54 a.m. Ottawa time. Swap markets put the odds of a 50-basis point cut next month at about a coin flip.

The participation rate dropped 0.1 percentage points — the fourth monthly decline since May — to 64.8%, reaching the lowest since December 1997 outside of the Covid-19 pandemic. The decline in labor force participation over the past year largely reflects a drop in students looking for work, and has been also influenced by the longer-term trend of rising retirements from an aging workforce.

The employment rate — the proportion of the working-age population that’s employed — fell 0.1 percentage points to 60.6%.

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

There is still one more jobs report scheduled before the Dec. 11 rate decision. Friday’s release “was never going to close the book” on the debate over whether to expect a 25 or 50 basis-point cut at that meeting, said Andrew Grantham, an economist at Canadian Imperial Bank of Commerce.

“The mixed nature of today’s data didn’t help, but we continue to lean towards another 50 basis-point move,” he said in a report to investors.

Overall, not much seems to have changed in the labor market, Charles St-Arnaud, chief economist at Alberta Central, said in an email. Job gains continue to be weak, but a drop in labor force participation left the unemployment rate unchanged, he said.

“There is nothing to change our view that the Bank of Canada should cut rates by 50 basis points in December. However, whether the Bank of Canada will want to continue its accelerated path to neutral remains to be seen and may depend on the next CPI release.”

Job gains were led by increases in business, building and other support services, which is a broad sector that includes waste management and administration and saw its first gain since May. Employment also rose in accommodation and food services, education services, manufacturing and construction.

Finance, insurance and real estate, transportation and warehousing as well as public administration shed the most jobs last month.

Regionally, employment rose in Alberta, New Brunswick and declined in Prince Edward Island. It was little changed in Ontario and Quebec.

—With assistance from Jay Zhao-Murray.

(Adds market, economist reaction starting in paragraph five.)