What economists say about the labour numbers and interest rates

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Canada’s unemployment rate held at 6.5 per cent in October as the economy added 15,000 jobs, Statistics Canada said on Friday.

Analysts had called for the jobless rate to rise to 6.6 per cent and the job market to generate 27,000 positions.

The numbers provide one piece of the puzzle that the Bank of Canada is assembling to decide whether to supersize the next expected interest rate cut with a second trim of 50 basis points (bps) or stick with the standard 25 bps.

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An inflation report due Nov. 19 and the next labour report will help the central bank fill in the pieces when it next meets on Dec. 11.

Here’s what economists think the October labour data means for the Bank of Canada and interest rates.

‘Insufficient’: National Bank of Canada

“In October, the increase in employment was still insufficient to stabilize the ongoing deterioration in the labour market,” Matthieu Arseneau and Alexandra Ducharme, economists at National Bank of Canada, said in a note.

The pair estimated the economy needed to add 51,000 net positions, not 15,000, to stop the employment rate from continuing to fall.

As it stands, the measure slipped 0.1 percentage points to 60.6 per cent, the sixth consecutive drop, and is down 1.8 percentage points from its high in 2023, the economists said.

“Although a decline in the employment rate is expected in the context of an aging population, the speed of the recent fall signals a clear cooling in the labour market,” they said.

Given the employment rate slowed for the third straight time in the core 25-54 age group and the youth employment rate remains at lows not seen since 1999, except for the pandemic, Arseneau and Ducharme said there is no reason to celebrate the unemployment rate holding steady.

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Furthermore, the Bank of Canada’s Business Outlook Survey said hiring intentions have retreated below their “historical average,” leaving the jobs market awash in workers as employers pull back.

“All in all, we remain concerned about further deterioration in the months ahead as monetary policy remains restrictive,” the economists said.

National Bank of Canada is calling for a 50 basis-point cut to interest rates at the next Bank of Canada meeting.

Lots of head fakes: MonFX

“The employment data suggests that the labour market remains soft, and September’s figure was an aberration,” Nick Rees, a senior currency market analyst at MonFX Pte Ltd., said in a note.

There was a gain of 46,700 positions in September, but Rees said the fewer temporary positions created over the summer led to fewer job losses, resulting in a “misleading” headline figure.

“Factoring this in, last month’s print was soft, and today’s reading is a continuation of that trend,” he said.

Rees thinks the unemployment number is a head fake, too, given that the participation rate of 64.8 per cent — the lowest level since 1997, excluding the pandemic — kept the jobless number from rising to the 6.6 per cent analysts were expecting.

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He also doesn’t think the increase in wages is as good as it seems, saying that “composition effects” are at play.

Still, he’s worried Friday’s jobs report could give the Bank of Canada pause on a larger interest rate cut.

“Today’s data is likely to give the governing council some pause, and marginally raises the risk that they fail to deliver another 50-bp cut next month,” Rees said.

50-bps cut looms: Oxford Economics

Canada’s unemployment rate may have held steady in October, but the conditions are in play for it to rise above seven per cent by early 2025, Michael Davenport, an economist at Oxford Economics Canada, said in a note.

“Canada’s labour market continued to loosen in October despite a steady unemployment rate,” he said. “Hiring remained soft, strong population growth continued and discouraged workers exited the labour force.”

Canada’s participation rate has been steadily trending down. At the start of 2024, it was 65.3 per cent; in October it was 64.8 per cent.

Davenport said the workforce could tighten as population growth reverses “as a result of the recent significant cuts to federal targets for immigration and temporary residents.”

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But he estimates there will be a lag before that appears in the labour force numbers.

In the meantime, “we expect continued lacklustre employment growth will help push the unemployment rate well above seven per cent by early 2025.”

The Bank of Canada gets more labour data on Dec. 6, when the job numbers for November come out. Third-quarter gross domestic product will also be available to policymakers.

“But with inflation below the two per cent target, we think it’s likely that the underlying trend of softening labour markets and below potential economic growth will push the (Bank of Canada) to cut rates another 50 bps in December,” he said.

• Email: gmvsuhanic@postmedia.com

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