Canada’s unemployment rate jumped to its highest level in years in November, bolstering bets that the Bank of Canada will deliver another outsized interest-rate cut next week to revive a sluggish economy.
The unemployment rate rose to 6.8 per cent in November from 6.5 per cent the previous month, Statistics Canada said Friday in a report. Excluding the pandemic, it was the highest jobless rate since January, 2017.
It was a robust month for hiring: Employment rose by 50,500 or roughly double analyst expectations. But a strong increase in job seekers more than offset the employment gains, resulting in a higher unemployment rate.
Moreover, the details of the hiring burst were less encouraging. The public sector accounted for the bulk of new positions, with a net increase of 45,000 jobs.
Canadian bond yields slid after the Statscan release, as did the Canadian dollar, which fell below 71 U.S. cents.
Investors also ramped up their bets that the Bank of Canada will cut its key interest rate – now at 3.75 per cent – by a half-point at its decision on Dec. 11, matching a large reduction at its previous meeting in late October.
As of Friday morning, swaps markets were placing an 83-per-cent chance that the BoC opts for a larger move next week, versus roughly 50/50 odds before the Statscan release, according to Bloomberg data.
“The Bank [of Canada] seems biased to ease quickly, and the high jobless rate provides them with a ready invitation,” Doug Porter, chief economist at Bank of Montreal, said in a client note. “The downside to such aggressive action is that the Canadian dollar is poised to weaken further – especially amid deep trade uncertainty – and housing is poised to reignite.”
The outcome of next week’s rate decision is still subject to debate. Despite the rise in joblessness, several analysts on Bay Street think the Bank of Canada will revert to a quarter-point cut, matching the first three moves of this easing cycle.
On Friday, Mr. Porter switched his prediction to a 50-basis-point move from 25 basis points. (A basis point is 1/100th of a percentage point.)
“To be clear, this is what we believe the Bank will do, not necessarily what we believe that they should do,” he wrote, citing domestic demand that is “clearly reviving,” a weak Canadian dollar and limited scope for U.S. rate cuts.
The details in Friday’s report were mixed. While it was the strongest month for hiring since April, there was just a small increase in private sector employment. The majority of new positions had full-time hours.
Average hourly wages rose by an annual 4.1 per cent in November, slowing from 4.9 per cent in October. Total hours worked across the economy edged lower by 0.2 per cent.
“Even with the messiness of today’s employment report, the economy continues to add jobs, reinforcing our view that the labour market is on solid foundations,” James Orlando, senior economist at Toronto-Dominion Bank, wrote to clients.
Statscan noted that the number of unemployed people – those actively searching for work or on temporary layoff – rose by 87,000 in November, bringing the total to 1.5 million. Over the past year, the ranks of unemployed people have risen 22 per cent.
In recent months, Bank of Canada officials have said that economic activity and hiring needs to pick up, flagging their concerns that inflation could undershoot the bank’s 2-per-cent target. (The annual inflation rate was most recently at 2 per cent in October and 1.6 per cent in September.)
The economic situation is running hotter in the United States, which reported on Friday that the country added 227,000 jobs in November. Federal Reserve chair Jerome Powell has said the U.S. central bank is not in a hurry to reduce interest rates, despite only starting that process in September.
This divergent path for monetary policy is weighing on the Canadian dollar, which is trading at its lowest levels in years, relative to the U.S. dollar.