By Robb M. Stewart
OTTAWA–Canada’s jobless rate dipped last month for the first time since the start of the year thanks to a rebound in hiring, softening some of the pressure the central bank may have felt to step up the pace of rate cuts in the face of a still lackluster outlook for the economy.
Canadian employers added 46,700 jobs in September after four straight months of little change, and the unemployment rate was 0.1 percentage point lower, at 6.5%, Statistics Canada reported Friday. The pace of hiring was stronger than market expectations for the addition of a modest 27,500 and a forecast unemployment rate of 6.7%.
The increase in employment in Canada was driven entirely by full-time jobs, which increased by 112,000 and more than offset a fall in part-time work. Private-sector employment was strong, increasing for a second consecutive month and making up for a fall in public-sector roles.
The data helped spur the Toronto Stock Exchange’s benchmark composite index to a fresh high intraday and had investors lowering expectations for a steeper half percentage point cut in interest rates when Bank of Canada officials next meet later in the month, with markets pricing in less of a chance of a cut greater than the quarter-point moves to date.
The jobs picture for the month echoed the experience in the U.S., where job growth also accelerated and the unemployment rate ticked lower to 4.1% and may have shut the door on a another half-point rate cut by the Federal Reserve at its upcoming November meeting. When calculated using U.S. Labor Department methodology, Canada’s unemployment rate fell to 5.4% from 5.6% in August.
The Canadian data can be seen as evidence three successive rate cuts by the central bank are helping stabilize labor markets and support the view the economy can still achieve a soft landing. Yet after months of lackluster hiring and with business and consumer sentiment still weak, economists continue to see interest rates as too restrictive and some argue bank policymakers will opt to look through one month of strong jobs headlines.
“With jobs delivering at least a one-month wonder of strength, and offering a tantalizing glimmer of hope that the economy may be pulling out of its funk, the case for an even more aggressive BoC just took a big step back,” said Douglas Porter, chief economist at Bank of Montreal.
The recovery in hiring doesn’t seal the deal for another steady quarter-point rate cut in October, given the volatility inherent in the labor report, but it does dent the strongest argument in favor of deeper cuts, which had been the steady softening in the job market, Porter said.
The Bank of Canada, which has shown increased comfort in the cooling path of inflation, has in recent months been looking for signs lackluster economic growth is picking up. Earlier this week, former Bank of Canada Deputy Gov. Paul Beaudry said he wouldn’t be surprised by a half point cut at the next meeting.
What there hasn’t been in Canada is a big change in layoffs. The steady rise in unemployment in recent months has been come largely from lengthier job-search times, particularly for students entering the job market or hunting for summer work. That may have lead to a seasonal quirk in the latest data, as a weak summer job market meant fewer young workers left positions than usual at the start of the school year, research firm Capital Economics said.
Still, there was strong growth in employment last month among adults 55 and under, and there was a second straight month of new jobs being added by the private sector, which saw its strongest month since mid-2023.
Bank of Canada Gov. Tiff Macklem has said it is reasonable to assume further interest-rate cuts, though the timing and pace will be determined by incoming data and what that means for future inflation. He and other officials are looking for the economy to pick up to ensure inflation doesn’t cool too sharply.
The central bank’s latest quarterly business and consumer surveys, also out Friday, indicate weak demand and spare capacity in the economy, as well as a turnaround in price expectations from a quarter earlier. Nearly three-quarters of firms in the country now anticipate inflation over the next two years will remain inside the central bank’s 1% to 3% target range and nearly half expect pay increases to decelerate, which may offer policymakers confidence interest rates can continue to fall without triggering fresh inflationary pressure.
Wage growth continues to outpace consumer inflation but has slowed. Average hourly wages for permanent employees rose 4.5% in September from a year earlier, softer than the 4.7% advance economists anticipated and down from a 4.9% rise the month before.
Total hours worked fell 0.4% during September, though were up 1.2% compared with a year earlier, which economists estimate will mean gross domestic product for the third quarter will be much weaker than the 2.8% annualized advance the Bank of Canada most recently projected.
There also are indications workers are becoming increasingly discouraged about job prospects.
The labor force participation rate, the proportion of Canadians 15 and older who are employed or looking for work, softened for a third month in the past four. And despite the rise in employment for the month the employment rate–the proportion of the working-age population that is employed–continued to trend lower from a peak early last year.
Economists at Royal Bank of Canada continue to expect half-point cuts at the two remaining Bank of Canada policy meetings this year. Others suggest the swaying factor could be inflation data for September that will be released Tuesday and will be one of the last major indicators to come out before the Oct. 23 meeting.
“The trend of deterioration in Canadian economic data is still intact and the risk to the BoC continues to be biased toward being behind the curve,” Geoff Phipps, trading strategist and portfolio manager at Picton Mahoney Asset Management, said.
Write to Robb M. Stewart robb.stewart@wsj.com
(END) Dow Jones Newswires
10-11-24 1249ET