Canada’s job market is ‘softening’. What that could mean for interest rates

October’s jobs report showed further signs the economy is slowing down and gave the Bank of Canada more reasons to hold interest rates steady, economists say.

The national economy added a modest number of jobs in October, but the hiring clip couldn’t keep pace with the growing labour force, Statistics Canada said Friday.

Canada’s unemployment rate ticked up to 5.7 per cent in October, up from 5.5 per cent in September.

The country added 18,000 jobs in the month, less than the 64,000 positions added in September. Full-time employment fell by 3,300 positions in October, with 20,800 jobs gained in part-time work.

Construction and the information, culture and recreation sectors saw gains in October, but that was offset by dropoffs in manufacturing and wholesale and retail trade.

5:03 Shifting Labour Landscape

Average hourly wages were up 4.8 per cent annually, down slightly from the month before.

October marks the fourth time in six months the unemployment rate has risen in Canada, despite employers largely expanding their payrolls since the start of the year. But the overall labour force has been expanding rapidly, thanks to record immigration levels.

While Canada’s economy has added 28,000 positions monthly on average since January, the working age population has grown at an average of 81,000 people per month, StatCan said Friday.

Employers in the U.S. also scaled back their hiring in October, adding a modest but still decent 150,000 jobs. The unemployment rate south of the border rose from 3.8 per cent to 3.9 per cent, data released Friday showed.

The Bank of Canada’s aggressive interest rate hikes have dampened economic growth this year as people and businesses pull back on spending.

Friday’s jobs report comes after fresh gross domestic product data on Tuesday showed Canada’s economy continued to stall in the third quarter of this year, with early indications that the country might already be in a technical recession.

Economists have been watching for more evidence that this economic softness is spilling over into the labour market.

“While the headline job gain was uneventful, make no mistake that the underlying picture for Canada’s labour market is softening,” BMO chief economist Doug Porter said in a note to clients on Friday morning.

1:57 With Canada’s interest rates temporarily on hold, what is the central bank’s next move?

With Canada’s unemployment rate rising 0.7 percentage points from the start of the year, and signs of easing in wage growth expected to continue, Porter said October’s labour report will keep the Bank of Canada “pinned more fully to the sidelines” in its upcoming interest rate decisions.

Tu Nguyen, economist with RSM Canada, said in a note Friday that there’s no “no doubt the Bank of Canada’s rate hikes are hitting the economy.”

Households renewing their mortgages into the now-higher interest rate environment will be forced to curb spending even further in the months to come, she said, and businesses will face tighter borrowing conditions as well.

Nguyen expects the unemployment rate will rise to six per cent by the end of the year, and that no further rate hikes will be required to tame inflation as the economy slows.

CIBC senior economist Andrew Grantham forecast that the unemployment rate would peak between six and 6.5 per cent sometime in early 2024. He said in a note Friday that the Bank of Canada could start rate cuts in the second quarter of the next year, with the labour market recovery beginning after that point.

Money markets see only the slimmest of chances for a rate hike at the central bank’s next decision on Dec. 6 and are pricing in a 25-basis-point cut for June, according to Reuters.

— with files from The Canadian Press, The Associated Press, Reuters