Supersize me? What economists say about the latest 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

“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 fell 0.1 percentage points to 60.6 per cent, the sixth consecutive decline and 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 fallen 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.

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.

25 vs. 50 bps: CIBC

“Canadian employment growth was lacklustre in October,” Andrew Grantham, an economist at CIBC Capital Markets, said in a note.

He said the “only reason” the unemployment rate remained unchanged was because the participation rate — those either working or looking for work aged 15 and older — fell.

It was that measure’s fourth decline since May, Statistics Canada said.

“Some of the detail was a little better,” Grantham said, citing the employment growth in full-time positions and that the hours worked rose 0.3 per cent month over month and 1.6 per cent year over year.

The economist also said that average hourly earnings for permanent workers increased by 4.9 per cent from the year before, accelerating from 4.5 per cent in September, while average hourly wages for employees also rose 4.9 per cent but from 4.6 per cent in the same timeframe.

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“With one more employment report before the Bank of Canada’s next interest rate decision, today’s release was never going to close the book on the 25 versus 50 (basis point) cut debate,” Grantham said. “The mixed nature of today’s data didn’t help.”

CIBC is sticking with its call for another 50-bps cut in December, he said.

‘So-so result’: BMO

“The October jobs report is very much consistent with an economy that is still grinding out modest growth, and wage gains that are slightly hot for comfort,” Douglas Porter, chief economist at BMO Capital Markets, said in a note.

He said some details were “mildly supportive,” including job gains recorded in the private sector, the full-time category and the manufacturing sector.

Wages grew by more than they did in September, but Porter said the Bank of Canada has decided that wage growth is more modest, likely in the four per cent range.

“This so-so result doesn’t really turn the dial on the Bank of Canada’s cut-o-meter,” he said, given that there is another month’s worth of economic data coming down the pipe.

Markets are slightly leaning toward a larger rate cut, but Porter thinks the Bank of Canada might become cautious on the size of the next rate cut since the Canadian dollar is struggling, the housing market is showing some signs of life and the United States economy is still roaring.

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