Canada's Job Market Insights for September

By Ismail Shakil and Promit Mukherjee

OTTAWA (Reuters) – Canada’s economy saw a net addition of 46,700 jobs in September, leading to an unexpected decrease in the unemployment rate to 6.5%, the first decline in eight months. This figure surpassed analyst expectations of an increase to 6.7% from 6.6% in August.

The stronger job data may lessen concerns regarding excess capacity in Canada’s labor market and weaken support for significant rate cuts by the central bank.

The central bank had reduced its policy rate by 25 basis points at its last three meetings and was anticipated to announce another cut on October 23. Financial markets are now pricing in a 25 basis point cut, with the probability of a larger 50 basis point cut dropping from 53% to 36% following the jobs report.

Kyle Chapman, a forex markets analyst at Ballinger Group, noted the report's strength but cautioned against using it as justification to prevent a larger cut due to ongoing labor market weaknesses.

In response to the jobs data, the Canadian dollar recovered most of its early losses, trading 0.07% weaker at 1.3749 to the U.S. dollar. The yield on the two-year government bond rose by 5.8 basis points to 3.230%.

Statistics Canada reported significant job gains were primarily in full-time positions, offsetting a decline in part-time work.

The favorable jobs data aligned with strong job gains from the United States in September, which posted the best numbers in six months. However, some economists expressed skepticism, pointing out the historical volatility of Canadian job data.

Katherine Judge from CIBC Capital Markets mentioned that mixed reports do not guarantee a 50 basis point rate cut in October, emphasizing the importance of the upcoming Business Outlook Survey and inflation figures.

Key contributors to the job gains included the wholesale and retail, information, culture and recreation, and professional, scientific and technical services sectors. The fall in unemployment was notably driven by a decrease in youth unemployment, which dropped by 1 percentage point to 13.5%.

Average hourly wage growth for permanent employees slowed to an annual rate of 4.5%, down from 4.9% in August, marking its slowest rate since June 2023.

The Bank of Canada has expressed concerns about labor market weaknesses amid high costs of housing and services, rising unemployment, and a softening economy. The employment proportion fell 0.1 percentage points to 60.7%, with the participation rate dropping to 64.9% from 65.1%.

In summary, the goods sector lost 3,600 jobs, while the services sector gained 50,200 jobs.