The recent Canadian jobs report for October signals a weakened labor market, diminishing the likelihood of further interest rate hikes by the Bank of Canada. The report reveals minimal job gains, a decline in full-time employment, stagnant working hours, and a slight easing in wage inflation. Most notably, the unemployment rate increased to 5.7%, the highest level in 21 months, raising concerns about the country’s economic strength. Given the underwhelming employment figures and the expectation of the economy moving into excess supply, it appears that the central bank’s policy rate has likely peaked at 5.0%.
The labor market’s challenges are further emphasized by a decrease in job vacancies and a rising unemployment rate. Despite this, the labor force participation rate remains relatively high, indicating that there is a significant pool of individuals either employed or actively seeking work. Job gains were observed in the construction sector, but economically sensitive sectors, such as manufacturing, retail, and finance, experienced job losses.
Wage inflation remains a concern for the Bank of Canada, with average hourly wages seeing a 4.8% increase in October. Looking ahead, the Bank of Canada is unlikely to make any rate adjustments at its December 6th meeting, considering the forthcoming economic reports and their tendency to avoid rate changes during the holiday season.
In the United States, a weaker employment report also suggests that the Federal Reserve will maintain a pause in interest rate adjustments for the remainder of the year. While rate relief may be on the horizon, it is expected to be several months away, with central banks likely to wait for sustained 2% inflation before considering interest rate cuts, possibly not until next summer. According to market expectations, a 25-basis point rate cut by the Bank of Canada is anticipated in July, marking a shift from previous predictions of a rate cut in September.
Published by Sherry Cooper