MNI: Canada Nov Unemployment 6.8% From 6.5%; Jobs +50.5K
Canada's unemployment rate climbed more than economists predicted in November with a strong job gain swamped by labor force growth, continuing a pattern of slack in the economy that keeps the central bank on a path to cutting interest rates Wednesday with the potential for another jumbo move.
Unemployment rose to 6.8% from October's 6.5% and is the highest outside of the pandemic since the start of 2017, Statistics Canada said Friday from Ottawa. Job creation quickened to 50,500 from the prior 14,500, lagging labor force growth of 137,800. Economists predicted a 6.6% unemployment rate and 20,000 net new jobs.
The Bank of Canada is bound to pay attention to rising unemployment given its view that a modest amount of slack has emerged and a period of above-potential growth is needed to re-balance the economy. Governor Tiff Macklem quickened the pace of rate cuts to a half-point in October following three 25bp moves that began in June and investors have been split on the size of next week's reduction.
Other parts of the Labour Market Survey were mixed. All the net November job gains were in higher-paying full-time work, while average yearly wage growth slowed to 4.1% from 4.9%, still well above the Bank's 1% to 3% inflation target range. The number of unemployed people has also jumped 22% over the last year, far ahead of the 1.6% gain in employment.
Labor force growth was also the fastest since September 2021, at odds with the government's recent move to curb record immigration as the job market softens.
Hours worked, which many economists use as a proxy for GDP, fell 0.2% in November and rose 1.9% from a year earlier. That's in line with lackluster output growth in recent quarters. Gross domestic product per person has been falling for most of the past two years, what former officials have told MNI amounts to a hidden recession.
The unemployment rate has also trended up since April 2023, rising 1.7 percentage points over the period.
Governor Macklem says inflation will hold around his 2% target after an earlier round of painful rate hikes, and risks to the outlook now center on how consumers respond to the loosening cycle. He’s also said that a soft landing remains a possibility.
Monetary policy remains restrictive even after the Bank's four cuts this year with the policy rate of 3.75% above 2% inflation. Many investors predict the Bank will keep cutting through early next year until the benchmark rate returns to around a neutral level seen at about 2.75%.