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Canada’s November jobs report showed a sharp jump in jobless numbers, sparking concerns over the health of the domestic labor market and renewing calls for the Bank of Canada to make a larger rate cut. Canada added 51,000 jobs in November, the fastest pace in seven months excluding the pandemic, significantly outstripping the FactSet forecast of 22,500.
However, the Statistics Canada report—viewed as a tiebreaker in the debate over whether the Bank will make a half-point or quarter-point cut—also showed a worrying trend in the labor market. The unemployment rate rose 0.3 percentage points to 6.8%, up from the 6.5% rate reported in October and September. This muddies the waters for the Canadian jobs market amid a broader economic slowdown. It marks the highest jobless rate in nearly eight years, which could be a source of worry for the Bank of Canada.
Will the Bank of Canada Cut by a Half Point?
“We think the Bank [of Canada] is likely to cut 50 basis points next week, [since] restrictive monetary policy is no longer needed,” says National Bank economist Matthieu Arseneau. He says the unemployment rate was held artificially low by falling participation in prior months, which masked how the labor market remains very soft. “There is still slack, and we are worried about further increases in the jobless rate in the months ahead,” he cautions.
Responding to the big spike in the unemployment rate, BMO chief economist Douglas Porter switched his call on the central bank’s next rate decision, and he now predicts a 50-basis-point cut. “When the facts change, we change, and the sharp rise in the jobless rate is a big change, especially after two months of calm,” he explained in a note to investors.
Although some indicators support the counter-argument for a quarter-point cut, such as increasing domestic demand, an uptick in core inflation, and the falling Canadian dollar, “the [central] bank seems biased to ease quickly, and the high jobless rate provides them with a ready invitation,” Porter wrote.
CIBC senior economist Andrew Grantham doubled down on his call for a 50-point cut after the November jobs report, saying it reflects a struggling economy: “Despite the headline increase in jobs, today’s data was on balance weaker than expected, and the 6.8% unemployment rate suggests that slack continues to open up within the Canadian economy.” He expects the situation to stabilize in the first half of 2025 and improve during the second half, “once interest rates reach a level low enough to accelerate economic growth.”
Desjardins macro strategist Tiago Figueiredo says, “All of this taken together, I still think the Bank of Canada cuts rates by 25 basis points in December.” Nonetheless, he concedes that “obviously, risks are skewed towards a 50-basis-point move.”
Philip Petursson, chief investment strategist at IG Wealth Management, views today’s numbers as further evidence that the Canadian economy is stumbling on multiple fronts, including key areas such as GDP growth and the unemployment rate. “We reiterate our belief that the Bank of Canada should and most likely will cut by 50 basis points at its next announcement,” he says. Petursson prefers to call the potential half-point cut “necessary” as opposed to “aggressive,” and he argues that “another 50-basis-point [cut] is a measured response to the ongoing economic challenges.”
Figueiredo takes a divergent view to reiterate his argument for a smaller cut. He points out that the increase in the unemployment rate came almost entirely from an increase in labor force participation. Therefore, the expected slowdown in population growth could keep the unemployment rate in check and further help rebalance Canada’s labor market.
November Jobs Report Shows Weakening Trend
Today’s labor report highlights a worrying trend in the Canadian labor market, with unemployment trending in the wrong direction. “The biggest surprise in the report was the massive imbalance between public and private sector hiring,” says Petursson. 90% of the jobs came from the public sector—a concerning pattern that “yet again highlights the overall weakness in the Canadian economy.”
Additionally, the economic weakness evidenced by the recent GDP report doesn’t give analysts confidence that the jobs market is turning around anytime soon. Arseneau remains worried about the stubborn slack in the labor market, which could worsen. “Hiring continues to be dominated by the public sector, while Canada’s private sector is clearly struggling,” he says, stressing that this was another reason for the Bank of Canada to “quickly get back to a neutral [monetary policy].”
In contrast, Figueiredo holds a more sanguine view of the jobs market—provided that US trade policies proposed by US President-elect Donald Trump don’t throw a wrench in the works. “At this current juncture, I still believe that the unemployment rate is close to its peak and we should start to see it normalize in the coming months,” he says.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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