Unemployment rate drops to 6.5% in Canada but “mixed signals” cut by 50 bp

Canada’s labor market data was unexpected in September, with 46,700 jobs added and the unemployment rate falling to 6.5 percent, according to Statistics Canada.

But “mixed” signs in that data and soft signs of the economy continuing in two key Bank of Canada (BoC) surveys also released on Friday complicate the interest rate picture. Market forecasts for a 50 basis point decline in Oct. 23 have decreased before they can recover, with economists giving different estimates after the new data.

The consensus before the announcement was that 31,500 jobs would be added in September, according to BMO Economics. BMO’s call was for a modest 20,000 job additions.

The 0.1 percentage point drop in the unemployment rate was the first decline since January. Some economists viewed the data as a sign of labor market strength that could dampen expectations of a major rate cut.

Others pointed to weaknesses in the data and the notorious inconsistency of the Labor Force Survey in general. That, along with the BoC Business Analysis and Canadian Survey of Consumer Expectationswhich describes an economy that is still under pressure from high interest rates, has led some to reserve their estimates for a 50 basis point cut.

The result of the labor data and business sentiment survey, BMO chief economist Douglas Porter writes, “was to leave the market almost perfectly split 50/50 with 25 interviews /50 for October.”

The mixed signals and lack of consensus mean that next week’s release of the Consumer Price Index for September will come into sharper focus.

Strong job numbers, ‘weak points’

“The September jobs report does not change the picture of a labor market that has cooled significantly since the Bank of Canada began raising rates,” TD Economics chief economist Leslie Preston wrote in a note following the data release. of workers. “The data doesn’t move in a straight line, and we’ll need to see the power for a few months before we can announce an improved method.”

Desjardins’ chief economist, Jimmy Jean, does not see such a trend, writing that 46,700 new jobs will come as the number of working people increases by 110,000.

“What remains unappreciated is the fact that this massive population growth sets a very high threshold for any increase in employment to meaningfully reduce labor market volatility,” Jean wrote, noted that Desjardins kept its call for a 50-point cut in Oct. 23.

RBC maintained its case for a 50 basis point cut in October and December, and economist Nathan Janzen wrote that “data on September’s jobs numbers were more mixed than the employment headlines and A reading of the unemployment rate alone would tell.”

The story continues

CIBC economist Katherine Judge wrote that the strong jobs numbers “mask some weak data.” Canada’s employment rate also fell by 0.1 percent in September as population growth continued to outpace job growth. Hours worked fell 0.4 percent, and low unemployment “was helped by a further decline in the participation rate,” Judge said.

The participation rate, or the share of working-age people who are actively working or looking for work, fell 0.2 percentage points to 64.9 percent in September. It was the third decline in four months, and the downward trajectory “reduces potential enthusiasm from today’s jobs data,” Geoff Phipps, business strategist and portfolio manager at Picton Mahoney Asset Management wrote in the letter. However, he argues that relying on a single data release was unwise.

“As evidenced by the uncertainty across economic data in the US, policymakers should be cautious about relying too heavily on one or two data releases to shape near-term policy. Details they have been changing and following great changes for various details.”

BMO’s Porter said that while labor data has been disappointing, strong signs are prevalent and could reduce the chances of a major slowdown. “One of the strongest arguments in favor of a larger rate is the steady decline in the labor market,” he wrote. “With jobs giving one month’s worth of energy – and giving the same glimmer of hope that the economy may be breaking out of its doldrums – the BoC’s case for more aggressiveness has taken a step towards great to go back.”

Full-time employment experienced the biggest gain since May 2022, Statistics Canada said, 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 percent decrease from the previous month.

Employment rose especially among 15- to 24-year-olds, with 33,000 jobs added, a 1.2 percent increase from August. Private sector jobs rose for the second consecutive month, rising by 61,000 (a 0.5 percent gain) in September, while public sector jobs fell by 24,000 (a 0.5 percent fall).

The release of the data followed a disappointing result in August where 22,100 jobs were added, mostly in temporary employment. The unemployment rate rose 0.2 percent in August, to 6.6 percent. The consensus before today’s announcement was for the unemployment rate to rise to 6.7 percent.

John MacFarlane is a senior reporter for Yahoo Finance Canada. Follow him on Twitter @jmacf.

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