Stronger-than-expected job gains boost hopes for a soft landing, supporting gradual rate cuts by the Bank of Canada
Canada’s unemployment rate dropped unexpectedly last month as job gains surpassed expectations.
According to Financial Post, this strengthened the Bank of Canada’s case for gradual rate cuts and raised hopes of a soft economic landing,
The jobless rate decreased by 0.1 percentage points to 6.5 percent, according to Statistics Canada, with the country adding 46,700 jobs.
Economists in a Bloomberg survey had predicted an increase in unemployment to 6.7 percent and a modest gain of 27,000 jobs. This is the first drop in the unemployment rate since January.
Full-time positions were the primary drivers of this growth, surging by 112,000 in the month, while part-time roles saw a decline of 65,300. The private sector added 61,200 jobs, while the public sector shed 23,600 positions.
The overall labour force increased by 15,900 people, which is one of the smaller rises in recent months despite Canada’s population growth since the pandemic.
This report highlights stronger labour demand in the economy, potentially buoyed by recent rate cuts from the central bank.
It also bolsters the Bank of Canada’s argument for gradual rate reductions, adding confidence that inflation could be controlled without causing significant employment downturns.
Following the release of this data, Canadian bonds underperformed, and yields rose. The two-year Canada benchmark yield increased to 3.15 percent, and the Canadian dollar reached a session high of $1.3725, breaking a seven-day losing streak against the US dollar.
Prior to this jobs report, traders in overnight swaps had considered the odds of a 50 basis-point rate cut at the upcoming Bank of Canada meeting on October 23 to be a coin flip.
Earlier in the week, former Bank of Canada deputy governor Paul Beaudry said he wouldn’t be surprised by a 50 basis-point cut at the meeting, while RBC Dominion Securities called for back-to-back cuts of that size in both October and December.
Governor Tiff Macklem and his team had already lowered the policy rate by 25 basis points for a third consecutive time in September, bringing it to 4.25 percent, and had indicated that further cuts could be expected.
Macklem had noted the ongoing challenge of employers not hiring enough to keep up with the growing labour force and warned that a “big change in layoffs” would be concerning.
This report may ease some of those concerns, as it is the final labour market update before the next rate decision and before the release of inflation figures on Tuesday. Most economists in a Bloomberg survey are expecting a 25 basis-point cut at the upcoming meeting.
Wage growth slowed to 4.5 percent on an annual basis, down from 4.9 percent previously. The sectors with the most job gains included information, retail, and culture, as well as wholesale and retail trade. Meanwhile, education, health care, and agriculture saw the largest declines in employment.
Youth unemployment also dropped, falling from 14.5 percent in August to 13.5 percent in September. Despite these improvements, young people and newcomers have continued to face difficulties finding employment throughout 2023.