‘Off the charts’ wage growth puts Bank of Canada in tough spot after jobs report

A surprisingly robust September jobs report could put the Bank of Canada in the position to raise interest rates again later this month, some economists are arguing.

Canadian employers added 64,000 jobs in September, Statistics Canada said Friday, outpacing August’s  gains of 40,000 positions and keeping the unemployment rate steady at 5.5 per cent for the third consecutive month.

Canada’s rapid population growth means the country has to add an estimated 50,000 jobs per month to keep pace with the expanding population growth, StatCan says.

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The agency says the September jump in employment was driven by part-time work.

The consensus of economists had called for a gain of roughly 20,000 positions in the month, but CIBC senior economist Andrew Grantham said in a note to clients on Friday that much of the growth was in the education sector, which tends to be “volatile” this time of year.

A gain of 66,000 education jobs in September more than made up a loss of 44,000 in August, StatCan said. Elsewhere, gains in the transportation and warehousing industries offset losses in financing, real estate, insurance and the construction sectors.

Average hourly wages were up 5.0 per cent in the month, rising at a slightly faster pace than the 4.9 per cent seen in August.

The Bank of Canada, which has hiked rates 10 times in the past 18 months, has stressed that it will be hard to fully curb inflation if wages maintain their current patterns of rising between four and five per cent annually.

The monthly, seasonally adjusted and annualized gain for average hourly wages on permanent employees was 8.3 per cent in September, said Derek Holt, vice president and head of capital markets economics at Scotiabank.

“Wages are just going off the charts,” Holt said. “With wage numbers like this and the fact that we haven’t had a soft patch on core inflation measures in Canada like they’ve had in the U.S., I would think we’re still in hike mode in October.”

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Grantham said the pace of wage growth “remained stronger than policymakers would like to see,” but he argued the gains are still reflecting a catchup from workers bidding up wages to offset the past year’s inflationary impacts.

“With the unemployment rate off last year’s lows and job vacancies continuing to fall, wage inflation could ease fairly quickly next year,” Grantham said.

BMO chief economist Doug Porter said in a note on Friday that the robust headline jobs number “overstates the strength of the labour market,” which saw most of its gains last month in seasonal employment trends and part-time work.

Porter added, however, that the overall gains in employment over the past year and continued wage inflation suggest that the economy is “not seriously buckling yet.”

“We don’t believe this is enough to tip the scales for the Bank of Canada, but it will keep their tightening bias firmly in place,” he wrote.

The September jobs report is the last one the central bank will get before is next interest rate decision on Oct. 25. However, the Bank of Canada will still see another inflation report as well as updated housing data before then.

Money markets increased bets for a rate increase later this month after the jobs figures were published. They now see about a 38 per cent chance for a hike later this month compared to a 28 per cent chance before the data, according to Reuters.

Yields on the 10-year Government of Canada bond were up 12 basis points early Friday following the jobs report. Bond yields have surged globally over the past week amid changing market expectations for interest rates to stay higher for longer, experts tell Global News.

Meanwhile, south of the border, U.S. employers added 336,000 jobs in September, an unexpectedly robust gain that suggests that many companies remain confident enough to keep hiring despite high interest rates and a hazy outlook for the economy.

Friday’s report from the Labor Department showed that hiring last month jumped from a 227,000 increase in August, which was revised sharply higher. July’s hiring was also healthier than initially estimated. The economy has now added an average of 266,000 jobs a month in the past three months.

Worries about a too-hot job market are sending Wall Street lower Friday, and stocks are on track to close out a fifth straight losing week with more drops.

— with files from the Associated Press, Reuters