Canada Jobless Rate Jumps to Highest Since 2017 Outside Covid

(Bloomberg) — Canada’s economy added jobs for the first time in three months, but the unemployment rate surprisingly jumped to the highest level since the pandemic as the expanding pool of new workers are unable to find work.

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The country added 22,100 positions in August, and the jobless rate rose 0.2 percentage points to 6.6%. Outside the Covid-19 era, that’s the highest rate since May 2017. Economists surveyed by Bloomberg expected employment to grow by 25,000 and the unemployment rate to increase to 6.5%.

The employment gains were driven by a net increase of 65,700 part-time positions. The number of full-time jobs fell 43,600. The country’s labor force rose 82,500 on the month, one of the larger increases in recent years.

The data were released at the same time as a highly anticipated nonfarm payrolls report in the US, which rose by 142,000 following downward revisions to the prior two months. Economists surveyed by Bloomberg were expecting an increase of 165,000. Treasury yields fell as markets weighed whether the weaker job gains would prompt a larger than quarter percentage point cut from the Federal Reserve at some point this year.

The Canadian dollar immediately rallied about 0.2% against the US dollar before reversing the move, trading at C$1.3498 per US dollar as of 9:01 a.m. in Ottawa. The loonie fell against all other G-10 currencies aside from the US dollar. Canada’s two-year yield was 3.079%, down about six basis points on the day.

Traders in overnight index swaps boosted bets that the Bank of Canada would need to cut by 50 basis points at its next meeting in October. They now see about a 40% chance of that happening, compared with less than 30% the day before.

Wage growth for permanent employees decelerated to 4.9% in August, slowing slightly less than the 4.8% rate anticipated by economists.

The data point to deteriorating labor demand in an economy that’s now consistently failing to add jobs at the pace of population growth. Still, there’s little evidence of widespread layoffs, and the weakness is likely to add to disinflationary pressures, suggesting the Bank of Canada can continue loosening borrowing costs at a gradual pace.

“This will put added pressure on the Bank to stay the course, and potentially open that door to a larger rate cut,” Andrew DiCapua, senior economist with the Canadian Chamber of Commerce, said in a statement.

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“We continue to see a significant chance that central bankers will need to lower the policy rate in October by 50 basis points to avoid falling behind the curve,” Royce Mendes, managing director of macro strategy at Desjardins Securities, said in a report to investors.

“That said, with much data still to be released between now and then, it’s too early to change our official call.”

Charles St-Arnaud, chief economist at Alberta Central, said the labor market has clearly stalled, but there are no signs of significant layoffs.

“There is nothing in today’s report that would suggest an acceleration in the pace of rate cuts by the BoC,” he said.

Andrew Grantham, economist with Canadian Imperial Bank of Commerce, described the report as slightly softer than expected, “consistent with continued steady interest rate cuts from the Bank of Canada.”

Canada’s unemployment rate has risen from 5% at the beginning of last year.

Canada’s youth unemployment rate continued to surge in August, rising to 14.5%, the highest since 2012 outside the pandemic.

The participation rate increased 0.1 percentage points to 65.1%. The employment rate — the proportion of the working-age population that’s employed — fell 0.1 percentage points to 60.8% as the population aged 15 and older increased by 96,400.

Job gains were led by increases in education and health care, and job losses were led by decreases in miscellaneous services. Public-sector hiring and self-employment fell, while the private sector added 38,200 positions.

Regionally, employment rose in six provinces, with gains led by Quebec and Alberta, while the number of jobs fell in four provinces.

Policymakers led by Governor Tiff Macklem reduced the policy rate by 25 basis points for a third straight time on Wednesday. Macklem said the labor market has slowed, with weak hiring and moderate layoffs, and the growing slack is expected to slow wage gains.

This is the first of two jobs reports before the next Bank of Canada rate decision on Oct. 23. The majority of economists in a Bloomberg survey expect the bank to cut by 25 basis points at each of the next four meetings, bringing the policy rate to 3% by mid-2025.

–With assistance from Randy Thanthong-Knight and Jay Zhao-Murray.

(Adds more details and economist reaction starting in paragraph four.)

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