Canada's Unemployment Rate Rises Amid Job Growth

OTTAWA (Reuters) – Canada's unemployment rate rose more than expected to 6.8% in November, marking a near-eight-year high (excluding pandemic years), even as the economy added a net 50,500 jobs, according to data released on Friday. This development has increased the likelihood of a significant interest rate cut next week.

Currency markets adjusted their expectations for a 50 basis point rate cut next week to 68%, up from 55% prior to the employment report. A 25 basis point cut is fully anticipated.

Analysts had predicted a net increase of 25,000 jobs and an unemployment rate of 6.6%, up from 6.5% in October.

The uptick in unemployment may prompt the Canadian central bank to consider a larger-than-normal cut of half a percentage point for a second consecutive time during the bank’s rate announcement on Dec 11.

The unemployment rate has increased by 1.7 percentage points since April 2023, reaching its highest level since January 2017 (excluding pandemic years), as per Statistics Canada.

The increase in the unemployment rate was attributed to more individuals actively seeking work, as indicated in the last significant economic data report before the Bank of Canada’s interest rate announcement.

Following the job report, the Canadian dollar showed slight strength, trading at 1.4053 to the U.S. dollar (or 71.16 U.S. cents), and yields on two-year government bonds decreased by 7 basis points to 3.026%.

Canada’s labor force expanded by 137,800, more than double the number of jobs created. Additionally, the average hourly wage growth for permanent employees slowed to an annual rate of 3.9%, down from 4.9% in October, marking the slowest growth since June 2023.

The Bank of Canada has cut its key policy rate by 125 basis points since June, bringing it down to 3.75%.

The job additions in November were entirely in full-time positions, which compensated for a slight decrease in part-time jobs. Overall, employment in the goods sector dipped by 20,800 jobs, primarily in manufacturing, while the services sector added 71,500 jobs, led by wholesale and retail trade.

The employment rate, reflecting the proportion of the population that is employed, held steady at 60.6% in November after declining for six consecutive months, with employment growth matching population growth, according to Statscan.