April 25, 2024


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Canada’s jobs growth triples estimates in September, putting pressure on BoC ahead of rate decision

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Canada’s jobs growth triples estimates in September, putting pressure on BoC ahead of rate decision
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While the number of jobs in Canada increased, the unemployment rate held steady at 5.5 per cent for the third consecutive month, as immigration-driven population growth offset the employment gains.Spencer Colby/The Globe and Mail

The Canadian labour market is adding jobs at a surprisingly quick pace, putting pressure on the Bank of Canada ahead of its next interest-rate decision later this month.

There was a net gain of 64,000 jobs in September, up from an increase of 40,000 in August, Statistics Canada said Friday in a report. This easily surpassed an estimate of 20,000 from Bay Street economists. The unemployment rate held steady at 5.5 per cent for the third consecutive month, as the country’s strong, immigration-driven population growth offset the employment gains.

The numbers in Friday’s report were decidedly mixed. Employment in educational services increased by 66,000 in September, after a drop of 44,000 in August – a volatile result that economists dismissed as a statistical quirk. Part-time roles accounted for most of the employment growth last month. And total hours worked across the economy fell 0.2 per cent.

Even so, compensation is climbing at elevated rates. Average hourly wages rose 5 per cent in September on a year-over-year basis, in line with increases in July and August.

This combination of sturdy job creation and strong wage growth is an encouraging trend for workers, who have been stung by high inflation for the past two years.

But it’s unlikely to bring comfort to the Bank of Canada, which is trying to take some steam out of the labour market as part of its fight against inflation. The bank faces a tough call on Oct. 25, when it will make its next rate decision. It will need to consider whether recent economic figures – including an upturn in the inflation rate – are worrisome enough to justify a resumption in interest-rate hikes, which lead to increased borrowing costs throughout the economy.

Douglas Porter, the chief economist at Bank of Montreal, wrote in a note to clients that “labour income is still powering ahead.”

“In turn, that suggests that the economy is not seriously buckling, yet,” he added. “We don’t believe this is enough to tip the scales for the Bank of Canada, but it will keep their tightening bias firmly in place.”

The number of people working in finance, insurance and real estate fell by 20,000 in September, and there was a drop of 18,000 in construction. Both industries are especially vulnerable to sharply higher interest rates.

The largest jump in employment during the month was in Quebec, which added 39,000 jobs. Next was British Columbia, at 26,000. Employment fell by 38,000 in Alberta, undoing the province’s gains in the previous two months.

Canada’s strong pace of population growth is having a tangible effect on the numbers. Statscan recently reported that the country’s population had increased by nearly 1.2 million, or 3 per cent, over the previous year, largely driven by the arrival of temporary residents, many of whom are workers.

Markets and economists react: Bond yields rise as traders price in higher odds of another BoC rate hike after jobs data

The U.S. added 336,000 jobs in September, or roughly double what analysts had expected, the country’s Labour Department reported on Friday. Canadian and U.S. bond yields rose after the reports were published, part of a sustained upswing that has sent borrowing rates to multiyear highs. Market participants are increasingly convinced that interest rates will need to remain high for a long period of time to bring inflation under control.

Traders are also raising their bets that central banks will continue hiking interest rates. Interest-rate swaps, which capture market expectations about monetary policy, are pricing in a nearly 40-per-cent chance the Bank of Canada will raise rates by a quarter percentage point this month, up from 28-per-cent odds just before Friday’s report.

Over the past 18 months, the Bank of Canada has hiked its benchmark rate to 5 per cent from crisis lows of 0.25 per cent, the quickest pace of policy tightening in decades. The bank held its key interest rate steady at its September rate decision.

But that pause is being tested by the latest flare-up in consumer price growth. Canada’s annual inflation rate rose to 4 per cent in August, from 2.9 per cent in June, largely because of higher fuel prices. The next inflation report is set to be published on Oct. 17. It will give the central bank more data to consider.

Other numbers are less buoyant. Economic growth has effectively stalled in recent months, while consumers appear to be pulling back on spending as higher borrowing rates eat into their budgets.

Royce Mendes, head of macro strategy at Desjardins Securities, said in a note to clients that the global rise in bond yields likely gives the Bank of Canada leeway to stand pat.

“Higher bond yields further out the curve are a substitute for policy rate increases and may even be more powerful in terms of their effect on the economy,” he wrote. “As a result, while we await the release of the September inflation data, we’re sticking with our call that the Bank of Canada holds rates steady later this month.”

Still, opinion is split over the central bank’s next move. Veronica Clark, a Citibank economist, expects the Bank of Canada to hike rates this month. In a research note, she pointed to an acceleration in wages for permanent employees as “the clearest evidence that the labour market has not loosened enough” to bring inflation back to the central bank’s 2-per-cent target.


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