Bank of Canada rate cut ‘a toss-up’: economists on jobs

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November’s job numbers — the final piece of data the Bank of Canada is waiting on to help inform its interest rate decision next week — showed the economy gained 51,000 positions, well ahead of analyst estimates of 25,000.

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The unemployment rate, meanwhile, jumped to 6.8 per cent from 6.5 per cent as more people looked for work. The forecast was for that rate to rise to 6.6 per cent.

Here’s what economists think the numbers mean for the Bank of Canada as it ponders its next rate move on Dec. 11.

Slack building: Oxford Economics

Slack is continuing to build in Canada’s labour market, Michael Davenport, an economist at Oxford Economics Canada, said in a note.

Private-sector employment was unchanged last month, while hours worked fell for the third time in four months and average hourly wages grew at their slowest pace in two years.

Meanwhile, gross domestic product (GDP) is expanding below potential, he said.

These factors, coupled with inflation, currently at the Bank of Canada’s two per cent target, have Oxford expecting policymakers to cut rates by another jumbo-sized 50 basis points.

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’25 basis points next week’: Desjardins

“With recent data providing conflicting information about the state of the Canadian economy, the jobs report was left as the tiebreaker ahead of next week’s Bank of Canada rate decision,” Royce Mendes, managing director and head of macro strategy at Desjardins Group, said in a note.

He described the labour report details as mostly “good,” given that the gains, while in the public sector, were in education and health care, not public administration.

The economist doesn’t think there is cause to be overly worried about the rise in the unemployment rate, which rose “solely” because more people looked for work rather than because more people lost their jobs.

“According to our calculations, the job separation rate, a proxy for workers losing employment, remains around historic lows,” he said.

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Total hours worked fell, but that was due to strikes last month at ports.

But Mendes said hourly wages are still rising at a “too-hot” rate for the Bank of Canada.

“We’re retaining our call that the Bank of Canada cuts rates by just 25 basis points next week,” he said. “The market and other economists no longer see it this way, so we are heading into the decision with an out-of-consensus view.”

‘Mixed’ report: RBC

The details in the November labour report were “mixed,” Nathan Janzen, assistant chief economist at Royal Bank of Canada, said.

Job gains aren’t keeping pace with the increase in Canada’s workforce, while the unemployment rate is up one percentage point from last year and two percentage points from its pandemic-era low of 4.8 per cent in July 2022.

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An increase of 80,000 in the population in November helped drive the jobless rate higher as it fuelled a rebound in the participation rate, Janzen said.

For those looking for work, the job search is lasting longer than “usual,” especially for graduates and newcomers to Canada.

“The rise in the unemployment rate (alongside a slowing in wage growth) should reinforce that interest rates are higher than they need to be to keep inflation at the BoC’s inflation target,” Janzen said in a note.

RBC is calling for another 50-basis-point cut next week.

‘Hitting wages’: RSM Canada

“The slow job market (is) finally hitting wages,” Tu Nguyen, an economist at assurance, tax and consultancy firm RSM Canada LLP, said in a note.

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Wage growth slowed to 3.9 per cent year over year in November after spending most of the year around the five per cent mark, she said.

Even if wage growth is easing, “employers are still hesitant to hire as the current real interest rate remains restrictive,” she said.

Job hunters are also having a tougher time in Canada’s labour market.

In November, 46.3 per cent of unemployed people were new to the labour market or hadn’t worked in almost a year.

“The size of the rate cut from the Bank of Canada next week remains a toss-up, but a 50-basis-point cut seems more likely now given low inflation and a weak job market,” Nguyen said.

• Email: gmvsuhanic@postmedia.com

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