Canada's unemployment rate rises to 6.8%, raising odds of jumbo interest rate cut
Jobless rate at its highest since January 2017, excluding the pandemic
Canada’s unemployment rate rose to 6.8 per cent in November, raising the odds of a 50-basis point cut by the Bank of Canada next week, according to some economists.
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Following Friday’s jobs data released by Statistics Canada, markets increased their bets for a 50-basis point cut to the central bank’s policy rate, which currently sits at 3.75 per cent. The last time the unemployment was this high was in January 2017, excluding the pandemic years. The economy added 51,000 jobs, with 45,000 of the new jobs coming in the public sector.
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Bank of Montreal chief economist Douglas Porter says BMO is now changing its call to a steeper cut, because the high jobless rate provides the central bank with a “ready invitation” to ease quickly.
“When the facts change, we change, and the sharp rise in the jobless rate is a big change, especially after two months of calm,” Porter said, in a note. “To be clear, this is what we believe the Bank will do, not necessarily what we believe that they should do.”
Andrew Grantham, senior economist with the Canadian Imperial Bank of Commerce, agrees that the unexpected increase in the unemployment rate supports a call for a steeper cut by the central bank.
“The weakening labour market, combined with still-sluggish trend in GDP, also supports our assumption that interest rates will need to drop below a neutral level next year in order to accelerate growth and reduce the growing slack in the economy,” Grantham said, in a report to clients.
The total number of unemployed persons now stands at 1.5 million, up by 276,000 compared to the same time last year. Nearly half of those currently unemployed have not worked in the last year or have never worked.
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The youth unemployment rate also rose in November to 13.9 per cent, following declines in September and October. Unemployment increased for both young women and young men aged 15 to 24 years old. The unemployment rate among core aged women rose to 5.8 per cent in November, and the jobless rate among core aged men remained unchanged at 5.7 per cent.
The employment rate held steady at 60.6 per cent, suggesting there are not enough jobs in the economy to absorb the number of people seeking employment.
“November saw the largest rise in job-seekers since the return-to-work era of 2022, far outpacing the capacity of Canada’s sluggish economy to absorb them,” said David Rosenberg, founder and president at Rosenberg Research & Associates Inc., in a note to clients.
Employment rose in several industries, including construction, which added 18,000 jobs after five consecutive months of stagnated growth. Wholesale and retail trade added 39,000 jobs and professional, scientific and professional services added 17,000 jobs. These gains were offset by declines in manufacturing, transportation and warehousing and the natural resources sectors.
James Orlando, senior economist at Toronto-Dominion Bank, thinks the fact that the economy is still adding jobs reinforces the view that the “labour market is on solid foundations.” TD Bank still thinks the Bank of Canada’s cut next week will be 25 basis points.
“So, we should be taking this with a heavy hand of salt,” said Orlando, in a note. “Rather, we focus on the trend, where employment growth has held up well, with cyclically sensitive sectors driving gains over the last few months.”
Wage growth decelerated in the month of November, with average hourly earnings increasing by 4.1 per cent on a year-over-year basis, compared to 4.9 per cent in October.
Unemployment was up in most of Canada’s major cities, with Windsor recording the highest jobless rate at 8.7 per cent. Toronto (8.1 per cent), Edmonton (8.3 per cent) and Calgary (7.9 per cent) also posted high unemployment.
• Email: jgowling@postmedia.com
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