Canada’s unemployment rate jumped to its highest level in years last month, bolstering bets that the Bank of Canada will deliver another large interest-rate cut next week to revive a sluggish economy.
The unemployment rate rose to 6.8 per cent in November from 6.5 per cent the previous month, Statistics Canada said Friday in a report. Excluding the pandemic, it was the highest jobless rate since January, 2017.
While it was a robust month for hiring – employers added 50,500 jobs in November, double analysts’ expectations – those gains didn’t keep pace with a strong increase in the number of job seekers, resulting in a higher unemployment rate.
Moreover, the details of the hiring burst were less encouraging: The public sector accounted for the bulk of new positions, with a net increase of 45,000 jobs.
Canadian bond yields slid after the Statscan release, as did the Canadian dollar, which fell below 71 US cents.
Investors also ramped up their bets that the Bank of Canada will cut its key interest rate – now at 3.75 per cent – by a half-point on Dec. 11, a repeat of its most recent announcement, in late October.
As of late Friday morning, swaps markets were pricing in a 75-per-cent chance of a half-point cut, versus roughly 50/50 odds before the Statscan release, according to Bloomberg data.
“The Bank [of Canada] seems biased to ease quickly, and the high jobless rate provides them with a ready invitation,” Doug Porter, chief economist at Bank of Montreal, said in a client note. “The downside to such aggressive action is that the Canadian dollar is poised to weaken further – especially amid deep trade uncertainty – and housing is poised to reignite.”
The outcome of next week’s rate decision is still subject to debate. Despite the rise in joblessness, several analysts on Bay Street maintain their view that the central bank will revert next week to a quarter-point cut, matching the first three moves of this easing cycle.
Mr. Porter, however, switched his prediction Friday to a 50-basis-point move from 25 basis points. (A basis point is one-100th of a percentage point.)
“To be clear, this is what we believe the Bank will do, not necessarily what we believe that they should do,” he wrote, citing domestic demand that is “clearly reviving,” a weak Canadian dollar and limited scope for U.S. rate cuts, given the hot economic data south of the border.
The U.S. added 227,000 jobs in November, rebounding from a tepid 36,000-job gain in October that was heavily affected by destructive hurricanes that month, the Bureau of Labour Statistics reported Friday.
The details in the Statscan report were mixed. While it was the strongest month for hiring since April, there was just a small increase in private-sector employment. The majority of new positions had full-time hours.
Over the past year, public-sector employment has risen 2.9 per cent, largely driven by hiring in health care, compared with 1.3-per-cent growth in the private sector.
Average hourly wages rose 4.1 per cent year-over-year in November, slowing from 4.9 per cent in October. Total hours worked across the economy edged 0.2 per cent lower.
“Even with the messiness of today’s employment report, the economy continues to add jobs, reinforcing our view that the labour market is on solid foundations,” James Orlando, senior economist at Toronto-Dominion Bank, wrote in a note to clients.
Statscan noted that the number of unemployed people – those actively searching for work or on temporary layoff – rose by 87,000 in November, bringing the total to 1.5 million. Over the past year, the ranks of the unemployed have risen 22 per cent.
In recent months, Bank of Canada officials have said that economic activity and hiring need to pick up, flagging their concerns that inflation could settle below the bank’s 2-per-cent target. (The annual inflation rate was most recently at 2 per cent in October and 1.6 per cent in September.)
Canada’s economy is considered by analysts to be particularly rate-sensitive because of elevated household debt levels and frequent mortgage resets, so a sharp rise in borrowing costs has dampened economic activity.
The U.S. economy, meanwhile, is growing at a hearty pace. Federal Reserve chair Jerome Powell recently said the U.S. central bank is in no rush to lower interest rates, despite only starting that process in September.
This divergent path for monetary policy is weighing on the Canadian dollar, which is trading at its lowest levels since early 2020 relative to the U.S. dollar.
Editor’s note: A previous version of this story incorrectly said the Canadian dollar was trading at its lowest level since 2016, relative to the U.S. dollar. It’s the lowest since 2020.