News & analysis

November’s jobs report marks another mixed data release out of Canada. Headline employment growth once again proved strong at 24.9k, with a whopping 59.6k jobs reportedly added in full-time positions. This more than reversed the skew towards part-time positions that undermined headline job growth in October.

Moreover, job increases were most visible in the private sector (+37k), which more than offset the fall in self-employment. And yet, despite the constructive headline figures, the details of November’s labour market report read as soft, confirming our view that the Canadian labour market is loosening and risks undermining an income-led economic recovery in 24H2 should the Bank of Canada fail to loosen policy in Q2.

The main sign of the labour market loosening came from the fact that employment once again struggled to keep up with the pace of population growth.

Due to a 77k increase in the working population and a 36k increase in the overall labour force, the employment rate fell 0.1pp to 61.8% while the unemployment rate ticked up to 5.8% to sit above its 2019 pre-pandemic average and reach levels last seen in the Q1 2022 lockdowns. Furthermore, job gains were primarily concentrated in manufacturing (+28k) and construction (+16k), with gains in the former category merely reversing October’s declines of -19k to bring the yearly growth rate back in touching distance of the all-industry composite (+2.5%). Furthermore, we think there are limitations to employment growth in construction due to low investment levels, specifically within residential construction. Turning to the service sector, job losses were pronounced. Wholesale and retail shed the largest amount of jobs at -27k, consistent with the signs of cooling consumer demand and services inflation, while financial services and real estate employment fell by -18k, likely reflecting the recent job cut announcements by major banks. We expect weak employment growth in these sectors to persist due to weak consumer demand and low levels of private sector investment.

Finally, alternative indicators of labour market slack, such as total hours worked and lay-offs, also suggested that the labour market is much weaker than headline employment levels suggest.

Total hours worked fell by 0.7% in November, casting risk around the Q4 GDP figure after showing no growth in October, while the number of unemployed people due to lay-offs increased to more than two-thirds (68.7%) compared with just 62.6% the year prior.

All told, today’s jobs report out of Canada is yet another piece of data that overstates the strength of the Canadian economy when viewing the headline figures in isolation. While the data isn’t concerning enough to prompt imminent discussion of rate cuts from the BoC, with that likely delayed until Q1 of next year, it certainly underscores the fact that the Canadian economy continues to fall further into excess supply.

We think this should lead the BoC to cut rates more aggressively in 2024 than markets are currently discounting, as the BoC will try to smooth out what looks to be a bumpy landing for the Canadian economy, which should see CAD underperform against the dollar at the start of 2024 and other petro-currencies from mid-2024 onwards.

Canada’s unemployment rate tracks back above its pre-pandemic average

Simon Harvey, Head of FX Analysis


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