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Canada had 1.5 million unemployed people in November, propelling its jobless rate to a near-eight-year high outside of the pandemic era and boosting chances of a large interest rate cut on Dec. 11.
The jobless rate rose to a more than expected 6.8% in November, Statistics Canada said on Friday, a rise of 1.7 percentage points since April 2023. A rate that high was last seen in January 2017, excluding a few months in 2020 and 2021.
Currency markets stepped up bets for a 50 basis point rate cut to 80% after the employment report, from 55% earlier. Chances of a 25 basis point rate cut shrunk to just one in five.
The report, the last data release before the Bank of Canada announces its final interest rate decision of the year on Wednesday, also affected the Canadian dollar, which weakened by 0.48% to 1.4090 to the U.S. dollar, or by 70.97 U.S. cents.
Yields of the government’s two-year bonds dropped significantly by 12.8 basis points to 3.026%.
“Today’s data was the final piece of the puzzle before next week’s Bank of Canada decision, and even though the piece didn’t fit perfectly, we still see the picture of a struggling economy that needs the help of another 50bp reduction in rates,” Andrew Grantham, senior economist at CIBC, wrote in a note.
Analysts polled by Reuters had forecast a net gain of 25,000 jobs and an unemployment rate of 6.6% from 6.5% in October. The economy added 50,500 jobs in November, data showed.
The rise in the unemployment rate was due to more people looking for work, the statistics agency said, and added that the youth unemployment rate for those aged between 15 and 24 years was the biggest contributor at 13.9%. Youth unemployment, however, always tends to be highest.
Canada’s labor force grew by 137,800, or more than double the gain in jobs, data showed, reflecting that the economy struggled to keep up with a surge in demand for jobs.
Adding to signs of labor market weakness, the average hourly wage growth for permanent employees slowed to an annual rate of 3.9% from 4.9% in October. The closely watched wage growth rate was the slowest since the 3.9% rate in June 2023.
The BoC has reduced its key policy rate by 125 basis points since June to 3.75% with a jumbo half a percentage point reduction in October as the bank increasingly grew more worried about anemic growth even as inflation came within its target range of 2%.
Canada’s economy grew at an annualized rate of just 1% in the third quarter, less than what the Bank of Canada had predicted, and early indicators show the fourth quarter growth will also lag expectations.
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“With slack continuing to build in the labor market, GDP growing at a soft below-potential pace, and inflation at the 2% target we expect the Bank of Canada will push ahead with another 50bp rate cut next week,” said Michael Davenport, economist at Oxford Economics Canada.
The job additions in November were entirely in full-time work that more than offset a small decrease in part-time jobs.
Overall, employment in the goods sector decreased by a net 20,800 jobs, mainly in manufacturing, while the services sector gained a net 71,500 jobs, led by wholesale and retail trade.
The employment rate, or the proportion of the population who are employed, remained at 60.6% in November after falling for six consecutive months, as employment growth kept pace with growth in the population, Statscan said, but could not keep pace with the growth in the labor force.
(Reporting by Promit Mukherjee, Ismail Shakil and Dale Smith in Ottawa; Editing by Mark Porter, Caroline Stauffer and Jonathan Oatis)
