News & analysis

Talk about a blowout jobs number. Following an August report where a 40k gain doubled expectations, September saw Canada’s job gains more than triple the 20k consensus, printing at 63.8k. This was the strongest job gain this year, just barely beating out the previous June high of 59.9k.

The fact that the Canadian labour market still has the capacity to absorb such a large inflow of new workers is impressive given the backdrop of stagnant economic growth. To that end, StatsCan reported that the population is growing at its fastest rate since 1957, with an 82.1k increase in September alone. Even with such a high influx of immigrants, the size of the labour force increased by 71.8k workers, leading to a 0.1pp increase in both the participation rate (65.6%) and employment-to-population rate (62.0%).

With this month’s surprisingly strong job growth, the unemployment rate held steady at 5.5% for the third consecutive month, which is still within spitting distance of the lowest rate ever recorded.

The continued tightness in the labour market also saw average hourly wages surge by 1.6% month-on-month to $34.01, keeping the year-over-year growth rate too high for the Bank of Canada’s comfort at 5.0%—and this rapid increase in wages even precedes the recent increases to 6 provinces’ minimum wages. Following the report, markets revised their implied probability of an October BoC hike from 29% to 44%, which essentially cancels out the downgrade that followed last Friday’s softer-than-expected GDP number. In the meantime, the loonie initially sold off as the simultaneously released US jobs report also showed a massive upside surprise south of the border, but traders quickly faded the initial move. Against the US dollar, the loonie is roughly flat on the day, but it is outperforming every other G10 currency.

With today’s gravity-defying employment gains and an economy that is still producing uncomfortably high levels of core inflation, it is beginning to look like Canada’s monetary policy is still not restrictive enough even as lagged data indicate that output growth has stagnated.

In our view, the Bank of Canada has two options. It can either resume its hiking cycle at its meeting in three weeks, which could become the most likely outcome if September’s inflation data continues to show core inflation running above the range that held for most of the year, or it could signal that rates will remain elevated for an even longer period than markets expect. Markets will be even more sensitive than usual to data surprises over the coming weeks given that monetary policy uncertainty has sharply risen.

One major caveat to today’s jobs data is that gains were highly concentrated in educational services (+65.8k), with the remaining 15 industries contributing a -2k decrease to the net figures. Furthermore, the bulk of those gains in the education sector were merely recouping a -44k loss in August, while StatsCan warned that the specific timing of school-year contracts could be distorting the seasonally adjusted figures. While the private sector accounted for 89% of the job increases over the past year, 97% of September’s job increases were made in the public sector.

This suggests to us that the gap between the labour market’s strength and the overall economy’s weakness may not be as puzzling as the top-line statistics would imply.

In addition, part-time work (+48.0k) accounted for three quarters of September’s total increase in jobs, furthering the idea that today’s job number isn’t as strong as it appears. We therefore believe that, despite two consecutive prints that strongly beat expectations, the trend is unlikely to continue. This could in fact be the get out of jail card that the BoC uses to hold at its October meeting should core inflation data cool from last month.

Narrow job gains could see the BoC discount today’s jobs report 




Jay Zhao-Murray, FX Market Analyst


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