Headline Canadian labour market data defied expectations in September, with a net 46,700 jobs added and the unemployment rate dropping to 6.5 per cent, according to Statistics Canada.
But “mixed” signals within that data and signs of ongoing economic softness in two key Bank of Canada (BoC) surveys also released Friday complicate the interest rate-cut picture. Market odds of a 50 basis point cut on Oct. 23 declined before regaining some ground, while economists offered divergent forecasts in the wake of the new data.
Consensus ahead of the announcement was that 31,500 jobs would be added in September, according to BMO Economics. BMO’s own call was for a more modest 20,000 jobs added.
The 0.1 percentage point drop in unemployment was the first decline since January. Some economists viewed the data as an indicator of labour market strength that could temper expectations for a bigger rate cut.
Others pointed to signs of weakness within the data and the notorious volatility of the Labour Force Survey in general. That, coupled with the BoC’s Business Outlook Survey and Canadian Survey of Consumer Expectations, which describe an economy still under pressure from elevated interest rates, led some to maintain their forecasts for a 50 basis point reduction.
The mixed signals and lack of consensus mean next week’s release of the Consumer Price Index for September will come into even sharper focus.
“For now, we continue to expect a 25 basis point cut on October 23rd,” BMO economist Shelley Kaushik wrote, “but given the stronger-than-expected Labour Force Survey, the decision will boil down to next week’s inflation report.”
Strong jobs numbers, ‘weaker details’
“September’s jobs report does not change the picture of a labour market that has cooled notably since the Bank of Canada started raising interest rates,” TD Economics senior economist Leslie Preston wrote in a note following the labour data release. “Data rarely moves in a straight line, and we would need to see a few more months of strength before we declare an improving trend.”
RBC maintained its base case for 50 basis-point cuts in both October and December, with economist Nathan Janzen writing that “details behind the September job numbers were far more mixed than the headline employment and unemployment rate readings alone would imply.”
CIBC economist Katherine Judge wrote that the strong jobs figures “masked some weaker details.” Canada’s employment rate also dropped 0.1 percentage points in September because population growth still outpaced growth in jobs. Hours worked dropped 0.4 per cent, and weaker unemployment “was helped by a further decline in the participation rate,” Judge said.
The participation rate, or the proportion of working-age people actively working or seeking work, fell 0.2 percentage points to 64.9 per cent in September. It was the third decline in four months, and that downward trajectory “trims some of the potential enthusiasm from today’s jobs data,” Geoff Phipps, a trading strategist and portfolio manager at Picton Mahoney Asset Management wrote in a note.
“Overall, the mixed report isn’t enough to make a 50 basis point cut a sure thing in October,” Judge wrote, referring to the Bank of Canada’s (BoC) next interest rate decision. However, the tone of the BoC’s Business Outlook Survey, set for release later this morning, along with next week’s release of the Consumer Price Index for September “could still make that outcome possible if they look soft enough,” she wrote.
The case for an even more aggressive BoC just took a big step back.Douglas Porter, chief economist, BMO
BMO chief economist Douglas Porter said despite the labour force data’s notorious volatility, signs of strength dominated and could decrease chances of a larger rate cut. “One of the strongest arguments in favour a bigger rate move was the previously steady softening in the job market,” he wrote. “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.”
Phipps wrote that odds of a 50 basis point cut dropped from about 50 per cent to 25 per cent with this morning’s data.
“As evidenced by the volatility across economic data in the US, policymakers should be cautious in overly relying on one or two data prints to form near-term policy. Data has been volatile and subject to large revisions for a variety of factors.”
Full-time employment had its largest gain since May 2022, Statistics Canada says, rising 0.7 per cent with 112,000 full time positions added in September. That was offset by a loss of 65,000 part-time jobs, a 1.7 per cent drop from the previous month.
The release of the data followed an underwhelming August result in which a net 22,100 jobs were added, largely in part-time work. The unemployment rate rose 0.2 percentage points in August, to 6.6 per cent. Consensus prior to today’s announcement was for the unemployment rate to rise to 6.7 per cent.
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
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