Hiring rebounds in September, lowering odds of larger Bank of Canada rate cut

Canadian employment rebounded in September and the unemployment rate ticked lower, forcing investors to trim their bets that the Bank of Canada will deliver a larger interest-rate cut later this month.

After four months of little change, employment jumped by nearly 47,000 in September, easily outpacing analyst expectations of a 27,000 gain, Statistics Canada said Friday in a report. The unemployment rate edged lower to 6.5 per cent from 6.6 per cent. Analysts were expecting the jobless rate to rise to 6.7 per cent.

Despite the increase in hiring, the employment rate has been sliding for much of the past two years, given the population is growing at a far quicker pace than jobs are being created.

The labour market has been going through a tough stretch as employers cope with higher interest rates and weaker consumer spending. Over the past year, the economy had added a net 313,000 positions, compared to 542,000 in the previous 12-month period.

Bank of Canada Governor Tiff Macklem has said he wants to see a pickup in hiring and economic activity, flagging concerns that inflation could drift below the central bank’s 2-per-cent target. The annual inflation rate ebbed to 2 per cent in August and has undershot the central bank’s expectations this year.

The BoC has delivered three consecutive quarter-point rate cuts since the summer, taking its policy rate to 4.25 per cent from 5 per cent. Because of some weak data of late, many economists and investors are predicting the bank will opt for a larger half-point cut on Oct. 23.

However, investors pared back their bets for a larger cut on Friday. Shortly after the release of Statscan’s numbers, financial markets were pricing in a 32-per-cent chance of a half-point cut, down from 53 per cent earlier on Friday morning, according to Bloomberg data.

The details of Statscan’s report were mixed. The entirety of the job gains were concentrated in the private sector and in full-time positions. Average hourly wages rose by an annual 4.6 per cent, down from 5 per cent in August – an encouraging sign for the Bank of Canada as it looks to tame price growth.

On the downside, total hours worked fell 0.4 per cent in September. Labour force participation also declined during the month, which contributed to a lower unemployment rate.

“Over all, the mixed report isn’t enough to make a [half-point] cut a sure thing in October,” Katherine Judge, an economist at CIBC Capital Markets, said in a note to clients.

Statscan will release its consumer price index for September on Tuesday, the last major economic release before the central bank’s decision.

Bank of Montreal chief economist Doug Porter said in a note that “one of the strongest arguments in favour a bigger rate move was the previously steady softening in the job market. With jobs delivering at least a one-month wonder of strength – and offering a tantalizing glimmer of hope that the economy may be pulling out of its funk –the case for an even more aggressive BoC just took a big step back.”