Canada's unemployment rate jumped to 6.8 per cent last month, as more people looked for work in a weakening job market. The economy did add 51,000 jobs in November, but it wasn't enough to offset the rise in unemployment
In November, Canada recorded 1.5 million unemployed individuals, pushing the jobless rate to 6.8%, a level not seen since January 2017, excluding the pandemic years. Statistics Canada revealed this represents a significant rise of 1.7 percentage points since April, underscoring the challenges facing the country’s labor market.
The report has fueled expectations of a significant interest rate cut when the Bank of Canada (BoC) announces its final decision of the year on December 11. Following the release, market bets for a 50 basis point rate cut jumped to 80%, up from 55% previously, while the likelihood of a smaller 25 basis point cut diminished considerably.
The economic data also affected financial markets. The Canadian dollar weakened by 0.48%, trading at 1.4090 against the U.S. dollar (or 70.97 U.S. cents). Meanwhile, yields on two-year government bonds fell sharply by 12.8 basis points to 3.026%.
Andrew Grantham, senior economist at CIBC, noted, “Today’s data doesn’t paint a perfect picture, but it solidifies the view of an economy in need of another 50 basis point rate reduction.”
While analysts had predicted modest job growth of 25,000 and a slight uptick in unemployment to 6.6%, the economy added 50,500 jobs in November. However, this wasn’t enough to offset the surge in job seekers, with the labor force growing by 137,800—more than double the job gains. Youth unemployment, which reached 13.9%, was a significant contributor to the overall rise.
Further signs of economic strain were evident in wages. Average hourly wage growth for permanent employees slowed to 3.9% annually, down from 4.9% in October, marking the slowest growth rate since June.
The Bank of Canada has already cut its key interest rate by 125 basis points since June, bringing it to 3.75%. The most recent cut of 50 basis points in October was aimed at addressing sluggish economic growth, even as inflation returned to the bank’s 2% target. The economy grew at an annualized rate of just 1% in the third quarter, falling short of expectations, with early indicators suggesting a similarly lackluster fourth quarter.
Economist Michael Davenport from Oxford Economics Canada predicts the BoC will move forward with another 50 basis point cut, citing labor market slack, slow GDP growth, and stable inflation as key factors.
In terms of job distribution, all gains in November were in full-time positions, offsetting a slight decline in part-time work. The goods-producing sector shed 20,800 jobs, primarily in manufacturing, while the services sector added 71,500 positions, led by wholesale and retail trade. Despite these changes, the employment rate held steady at 60.6% as job growth aligned with population growth but trailed the expansion of the labor force.
The upcoming BoC decision will be closely watched as policymakers balance economic growth, employment, and inflation in a challenging environment.
