Canada Unemployment Rate Steady at 6.5% in October -- 2nd Update

By Robb M. Stewart

OTTAWA--Slack in Canada's job market continued to grow, with muted hiring in October leaving the unemployment rate unchanged and further signs job-seekers are growing frustrated by the lack of openings.

Soft labor data for the month builds on indications economic growth has cooled even as overall inflation has continued to decelerate, leaving the way clear for the Bank of Canada to continue lowering borrowing costs but leaving unclear just how deeply policymakers may feel rates need to be cut.

Canadian employers added 14,500 jobs in October, more than 12,000 fewer than the month before, Statistics Canada reported Friday. That was weaker than the 27,150 rise in employment economists were expecting.

The pace meant the jobless rate was steady at 6.5% after unexpectedly edging down 0.1 percentage point in September.

A lackluster labor market suggests businesses have yet to respond to four successive interest rate cuts by the Bank of Canada since the middle of the year.

Central bankers are watching labor markets closely, among other indicators they have said could spur another outsize rate cut. Economists expect the bank to take little comfort from the unchanged jobless rate given immigration is still fueling hot population growth, and both employment and participation rates in the market continue to weaken.

"Although the headline unemployment rate didn't increase as expected, that was due to a fall in overall participation and a decline in joblessness among young people following the summer spike," said Andrew Grantham, a senior economist at CIBC Capital Markets. With one more jobs report and plenty of other data due before the next rate decision, Grantham says a worrying rise in unemployment for the core working-age population continues to argue for another half percentage point cut next month.

Job openings have declined this year, falling below prepandemic levels, while the most-recent business outlook survey by the Bank of Canada suggests hiring plans remained weak in the third quarter. Most analysts expect unemployment to continue rising and peak in the coming months, then begin to slide some time next year with the help of further rate cuts aimed at spurring consumer spending and business investment.

When calculated using U.S. Labor Department methodology, Canada's unemployment rate rose to 5.6% from 5.4% the previous month. With U.S. workers sidelined by hurricane effects and a strike at Boeing, the American economy added a seasonally adjusted 12,000 jobs in October after a gain of 223,000 the month before, though the unemployment rate remained at a historically low 4.1%.

Lackluster employment growth in Canada could see the unemployment rate well above 7% by early 2025, with federal government moves to cut targets for immigration and temporary residents taking time to show up in the labor force survey, Oxford Economics economist Michael Davenport said.

With little change in Canadian job numbers last month, the proportion of the working-age population who were employed slipped 0.1 percentage point to 60.6%, a sixth consecutive monthly fall. On an annual basis, the employment rate declined 1.3 percentage points to continue a downward trend from a peak in early 2023.

The labor force participation rate, the proportion of Canadians aged 15 and older with jobs or who are looking for work, also inched down 0.1 point to 64.8%, a fourth decline since May to the lowest level since the early days of the pandemic rebound. The data agency noted that excluding the pandemic years, participation is at its lowest since December 1997.

Population growth continues to outpace employment gains, with almost 1.18 million newcomers in Canada last month compared with a year earlier. Though steady in October, unemployment has been building in Canada, rising from 5% at the start of 2023, driven in large part by new immigrants and young workers. At the same time the economy has struggled, with the latest industry data from Statistics Canada pointing to third-quarter growth cooling to 1.5% annualized from 2.1% the quarter before and compared with the 1.5% expansion most recently forecast by the central bank.

"If the labor market and broader economy start exhibiting greater weakness going forward, the question will not be if the [Bank of Canada] continues to cut rates but if the pace of rate cuts will need to accelerate," said Randall Bartlett, senior director of Canadian economics at Desjardins, who for now anticipates policymakers will revert to a quarter-point cut at the next policy meeting.

The labor survey showed that for a second straight month jobs growth was concentrated in full-time work, which increased by 25,600 in October to counter a 11,200 drop in part-time roles. The number of employees in the private sector was little changed following growth totaling almost 100,000 combined in August and September, and public-sector employment and the ranks of the self-employed also were virtually unchanged.

Though annual inflation continues to cool in Canada, easing to 1.6% annually in September, wage growth continues to exert price pressure. Average hourly wages for permanent employees rose 4.9% in October from a year earlier, accelerating from 4.5% growth the month before and topping the 4.5% advance economists anticipated.

"This so-so result doesn't really turn the dial on the Bank of Canada's cut-o-meter," said Bank of Montreal chief economist Douglas Porter, who sees the jobs numbers as consistent with an economy grinding out modest growth and wage gains that remain slightly hot for comfort. Porter said that while market pricing indicates investors are still leaning slightly toward a follow-up half-point cut next month, the central bank may be a bit more cautious.

Write to Robb M. Stewart [e-mail]

(END) Dow Jones Newswires

11-08-24 1324ET