By Promit Mukherjee

OTTAWA (Reuters) – Canada added a fewer-than-expected 14,500 jobs in October, with wages for permanent employees rising, as the economy struggled to absorb growing labor force slack.

The unemployment rate remained unchanged from September at 6.5%, close to a 34-month high, according to Statistics Canada. Analysts had forecasted a net addition of 25,000 jobs and an increase in the unemployment rate to 6.6%.

Business investment and hiring in Canada have been subdued despite four rounds of rate cuts, as high interest rates and inflation stifle demand. Additionally, immigration has pushed the labor force past 7% of the overall population, leading to a growing number of job seekers without employment, causing a decline in the employment rate among those aged 15 and older.

Canada's labor force increased by 2.4% from last year, but the employment rate fell to 60.6% in October, marking its sixth consecutive monthly decline. Doug Porter, chief economist at BMO Capital Markets, noted that the jobs report reflects an economy showing modest growth, with wage gains slightly concerning.

Bank of Canada Governor Tiff Macklem stated that while layoffs have been modest, weak business hiring has particularly impacted young people and newcomers. Despite this, he remains hopeful that ongoing interest rate cuts will foster economic growth and increase employment.

The jobless rate among individuals aged 15 to 24 dropped by 0.7 percentage points in October to 12.8%, with employment in this demographic rising for the first time since April.

The Bank of Canada has reduced its key policy rate by a cumulative 125 basis points to 3.75%, with a significant cut of 50 basis points last month to support economic growth and better utilize the excess labor supply.

Following the jobs report, predictions for an additional 50 basis points rate cut on December 11 dropped from 62% to 58%.

The Canadian dollar weakened by 0.41% to 1.3918 to the U.S. dollar, while two-year government note yields rose by 0.3 basis points to 3.072%.

Average hourly wage growth for permanent employees increased to an annual rate of 4.9% in October, up from 4.5% in September. This figure is closely monitored by the Bank of Canada; rising wages could deter further deep cuts in the following month.

Before the next rate decision, one more jobs report and data on inflation and GDP will be available.

The job increases were entirely due to full-time employment growth, while part-time employment declined. The growth was widespread, with both goods-producing and services sectors showing healthy expansion.