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Canada’s Unemployment Rate Falls Unexpectedly, Boosting Case for Gradual Rate Cuts
The Canadian economy has experienced an unexpected boost as job gains surpassed expectations, leading to a decline in unemployment rates. This development is expected to bolster the Bank of Canada’s case for gradual rate cuts and raise hopes of a soft landing.
Canada Adds 47,000 Jobs, Unemployment Falls to 6.5%
According to Statistics Canada’s latest report, the jobless rate dropped by 0.1 percentage points to 6.5 percent in September as the country added 46,700 jobs. Economists had predicted a rise in unemployment rates to 6.7 percent with modest job gains of 27,000. This marks the first time the unemployment rate has fallen since January.
Strong Labour Demand and Job Gains
The growth was led by full-time positions, which surged by 112,000 on the month, while part-time roles fell by 65,300. The private sector was a strong driver of job creation, adding 61,200 jobs, while the public sector shed 23,600. The country’s labour force grew by just 15,900 people, one of the smaller increases in recent months as Canada’s population has surged since the pandemic.
Data Points to Surprisingly Strong Labour Demand
The data indicate surprisingly strong labour demand in an economy that may be feeling some wind in its sails from the central bank’s rate cuts. The report will add to the Bank of Canada’s case for keeping rates low and firm up hopes that it will be able to tame inflation without a deep downturn in employment.
Markets React to Jobs Report
Canadian bonds underperformed after the release as yields rose, pushing the two-year Canada benchmark yield to 3.15 percent. The loonie rose to a session high of $1.3725, on course to break seven days of losses versus the greenback as of 8:39 a.m. in Ottawa.
Rate Cut Expectations
Before the report, traders in overnight swaps put the odds of a rate cut at 25 basis points at around 80 percent. However, some analysts have called for bigger cuts. RBC Dominion Securities has suggested back-to-back cuts of 50 basis points this month and in December.
Policymakers’ Expectations
The Bank of Canada, led by governor Tiff Macklem, reduced the policy rate by 25 basis points for a third straight time in September, bringing it to 4.25 percent and saying it was reasonable to expect further cuts. Macklem has stated that employers are not hiring enough to keep pace with labour force growth, and that a "big change in layoffs" would spark concern.
Wage Growth Slows
Wage growth also slowed, to 4.5 percent annually from 4.9 percent previously.
Sectoral Breakdown of Job Gains
The information, retail and culture sector as well as wholesale and retail trade led the job gains, while education, health care and agriculture lost the most jobs.
Youth Unemployment Rate Falls
The youth unemployment rate fell to 13.5 percent in September from 14.5 percent the previous month. Young people and newcomers have struggled the most to find jobs in Canada this year.
Implications for Interest Rates
The report is likely to ease concerns that employers are not hiring enough to keep pace with labour force growth. Most economists expect a rate cut at the next meeting, although some analysts have suggested bigger cuts may be needed to stimulate the economy.
Conclusion
Canada’s unexpected job gains and declining unemployment rates provide a boost for policymakers as they consider further interest rate cuts. The data indicate surprisingly strong labour demand, which is expected to support the Bank of Canada’s case for keeping rates low and firm up hopes that it will be able to tame inflation without a deep downturn in employment.
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