A surprise jump in the unemployment rate in November drove the loonie lower on Friday and raised odds among markets and some big banks for a second consecutive oversized interest rate cut from the Bank of Canada.
Canadian employers collectively added some 51,000 jobs in November, Statistics Canada said, but the unemployment rate jumped to 6.8 per cent as more people looked for work.
That brings the jobless rate 0.3 percentage points higher than in October and to its highest levels since January 2017, outside the COVID-19 pandemic years.
Across the country, job gains were in mainly full-time work and in the public sector last month, StatCan said.
Both the magnitude of the rise in the unemployment rate and the number of job gains last month topped the consensus of economists’ expectations.
James Orlando, director of economics at TD Bank, told Motorcycle accident toronto today on Friday that it can be hard to parse a coherent picture of the Canadian labour market when employment is on the rise but the jobless rate is also ticking higher.
“It’s not easy for people to digest this report,” Orlando said. “Even us economists are scratching our heads, being like, ‘StatCan, what are you giving us here?’”
While the jobless rate did rise sharply month-to-month, Orlando said it’s important to look at why unemployment was higher.
Some 87,000 people were newly unemployed in November, including all those looking for work or on a temporary layoff. The rising participation rate — those working or looking for a job — was a major factor driving up the jobless rate, as an increase in November offset declines of the same proportion across October and September.
After falling for six consecutive months, StatCan noted that the employment rate held steady in November as job gains largely kept pace with population growth among those 15 and older. The employment rate remains 1.2 percentage points lower than a year earlier, StatCan said, as employers have largely failed to keep pace with Canada’s rapidly growing labour force.
Get weekly money news
Get expert insights, Q&A on markets, housing, inflation, and personal finance information delivered to you every Saturday.
But Orlando noted that the labour force survey is a traditionally “volatile” data series, and cautions against reading too deeply into any one month at a time.
He said there’s nothing in the November jobs report that changes the underlying trend, which is that Canada’s unemployment rate has been rising during this cycle largely thanks to population growth, not a pronounced slowdown in hiring or layoffs.
Orlando said that with consumer spending on the rise, the demand for workers among Canadian businesses is strong. To him, that implies a Canadian labour market that is stronger than the headline jobless rate might suggest.
“Just because the unemployment rate is rising, it doesn’t mean we’re in a troublesome situation in Canada,” he said.
Markets nonetheless reacted strongly to the November jobs report, which came alongside the release of fresh employment data in the United States on Friday.
South of the border, data from the U.S. Labor Department showed the America job market rebounded in November, adding 227,000 workers in a solid recovery from the previous month, when the effects of strikes and hurricanes had sharply diminished employers’ payrolls.
Friday’s report also showed that the unemployment rate ticked up from 4.1 per cent in October to a still-low 4.2 per cent.
The loonie dropped roughly half a cent to 70.6 cents compared to the U.S. dollar on Friday, hovering nearly five-year lows. The Canadian dollar has struggled in recent weeks as Donald Trump’s re-election, among other factors, has encouraged investors to pile into the American greenback.
BMO calls for 50 basis points
The November jobs figures are the final major economic data release before the Bank of Canada’s interest rate decision on Dec. 11.
So far, the central bank has dropped its policy rate by 1.25 percentage points since June, including an oversized step of 50 basis points in October.
Heading into next week’s decision, inflation pressures have shown some signs of reigniting, returning to two per cent in October, while third quarter results for the economy undershot the Bank of Canada’s expectations.
Currency markets raised bets for a rate cut of 50 basis points next week to 80 per cent from 55 before the employment report was released.
After the November jobs figures showed a larger than expected jump in the unemployment rate, BMO chief economist Doug Porter said in a note to clients on Friday that the bank is now expecting a half-point cut next week.
“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.
He went on to say there’s still a solid case for a 25-basis-point cut, and that a steeper drop is what BMO expects the Bank of Canada will do, not what it thinks the central bank should do.
Porter noted that there are signs of consumer demand returning in the economy, and expectations that the Bank of Canada’s counterpart to the south, the U.S. Federal Reserve, will ease less aggressively than first thought.
“But the Bank seems biased to ease quickly, and the high jobless rate provides them with a ready invitation,” Porter wrote. “The downside to such aggressive action is that the Canadian dollar is poised to weaken further—especially amid deep trade uncertainty—and housing is poised to reignite.”
CIBC and RBC, already in the 50-basis-point camp, maintained their calls after the November jobs figures.
Orlando said that while it will be a close call, he believes the Bank of Canada ought to deliver a more normal, 25-basis-point cut next week.
He believes that the November unemployment rate as measured by StatCan has not captured the slowdown in population growth in 2024, and warns against overreactions to a one-month spike.
With growing consumer confidence and an uptick in housing activity in response to the central bank’s half-point cut in October, Orlando sees no reason to deliver a second sharp cut to the policy rate. Canada’s economy is not in the imminent danger that would warrant a drop of that magnitude, he argues.
“We’ve got to get it out of our heads that a rising unemployment rate means that, “Oh we’re going into recession,’” Orlando said.
“Things aren’t as bad as people are making them out to be.”
— with files from The Associated Press and Reuters