Weaker-Than-Expected October Jobs Report Keeps Jumbo Rate Cut In-Play in December

Friday’s report showed an economy still creating jobs with room to churn out more. Bank of Canada policymakers cited the weakening in the labour market to ramp up the pace of reducing borrowing costs last month. Some market participants see a possibility of another 50 bps overnight policy rate cut at this year’s final decision on Dec. 11. Swap markets put the odds of a 50-basis point cut next month at about a coin flip.

The labour force participation rate fell a tick—the fourth monthly decline since May—to 64.8%, reaching its lowest level since December 1997 (except for the COVID-19 pandemic period). The decrease in labour force participation over the past year primarily reflects a drop in students looking for work.

The employment rate—the proportion of the population aged 15 and older who are employed—decreased by 0.1 percentage points to 60.6% in October, the sixth consecutive monthly decline. It fell 1.3 percentage points on a year-over-year basis and has been on a downward trend from a recent peak of 62.4% in February 2023. The longer-term trend of rising retirements from an aging workforce has also reduced the employment rate. 

The number of employees in the private sector was little changed in October, following two months of growth totalling 99,000 (+0.7%) in August and September. Public sector employment and self-employment were both virtually unchanged in October.

In October, employment in business, building and other support services rose by 29,000 (+4.2%), the first increase since May. On a year-over-year basis, employment in this industry—which includes establishments primarily engaged in activities that support the day-to-day operations of organizations, from waste management to administrative services—was up by 33,000 (+4.8%).

Employment in finance, insurance, real estate, rental and leasing fell by 13,000 (-0.9%) in October. Despite the decline in the month, employment in the industry was up by 50,000 (+3.6%) on a year-over-year basis, outpacing employment growth across all industries (+1.5%).

Public administration employment fell by 8,700 (-0.7%) in October, following two consecutive months of little change in August and September. Employment in public administration had previously followed a strong upward trend from August 2023 to July 2024, rising by 65,000 (+5.5%) over the period.

Employment in Alberta rose by 13,000 (+0.5%) in October, the second increase in three months. At 7.3%, the unemployment rate was little changed in the month, but was up 1.4 percentage points compared with October 2023. Over the same period, the employment rate in Alberta fell 1.6 percentage points to 63.7%, as employment growth (+2.3%; +58,000) was slower than growth in the population aged 15 and older in the Labour Force Survey (LFS) (+4.8%).

Employment also increased in New Brunswick in October (+3,300; +0.8%) and the unemployment rate was little changed at 6.8%. On a year-over-year basis, employment in the province was up 3.1% (+12,000).

There were fewer employed people in Prince Edward Island in October (-1,100; -1.2%). The decline in employment, coupled with an increase in the number of Prince Edward Islanders in search of work, pushed the unemployment rate in the province up 2.9 percentage points to 10.0%.

Both Quebec and Ontario saw little overall employment change in October. The unemployment rate held steady in October in Quebec (at 5.7%) and in Ontario (at 6.8%).

Wage growth for permanent employees accelerated to 4.9% in October, from 4.5% last month and beating the 4.5% rate anticipated by economists.

One more jobs report is scheduled before the Dec. 11 rate decision.  Canada’s October labour survey details aren’t as downbeat as we expected. However, the downside surprise in total hiring will give the BoC cover to continue cutting rates as it rushes to return to a neutral policy stance.

Economists are divided on whether the Bank of Canada will cut by 25 or 50 basis points on December 11. The October inflation data, released on Tuesday, November 19, will become all the more critical. The numbers are expected to be good, meaning low, but not as low as the 1.6% y/y inflation rate posted for September, driven down by the marked fall in gasoline prices. Monetary policy remains overly restrictive as the 3.75% overnight policy rate remains well above the inflation rate. We expect the overnight rate to fall to 2.5% by April or June of next year. This should continue to boost housing activity, which picked up significantly in October. Full data for October housing nationwide will be released next week on Friday, November 15. 

All signals bode well for a sharp increase in housing activity by the spring, if not markedly sooner.