Canada's job growth in September puts Bank of Canada rate cut in doubt

Canada’s labour market surprised in September, adding 60,400 jobs while the jobless rate stayed at 7.1%, Statistics Canada reported.

These strong gains, led by full-time work and a manufacturing rebound, have cast doubt on a Bank of Canada rate cut and forced mortgage professionals to rethink their outlook.

Economists had widely expected a far more modest jobs gain, with the median forecast at just 5,000. Public sector hiring, along with increases in manufacturing, agriculture, and healthcare, drove the growth. The employment rate edged up to 60.6%, while the participation rate rose to 65.2%.

Traders quickly dialed back bets on an imminent BoC rate cut. The odds of a move at the October 29 meeting dropped from 50% to about 25%, according to market data.

“Today’s data still suggests that a large degree of slack remains within the labour market, which we think justifies a further interest rate cut from the Bank of Canada, although today’s strength in employment could delay the timing of that move,” Andrew Grantham, CIBC economist, said in a note.

Manufacturing rebounds, but headwinds persist

Manufacturing employment, battered earlier this year by trade tensions, posted its first increase since January, adding 28,000 jobs, mostly in Ontario and Alberta. Still, the sector remains down 58,000 jobs since January, highlighting ongoing volatility.

Gains were concentrated among core-aged workers, with youth employment flat and the unemployment rate for that cohort climbing to 14.7%, its highest since September 2010 outside the pandemic. Alberta led provincial gains, offsetting summer losses, while Ontario’s jobless rate ticked up to 7.9%.

Mortgage market implications

For mortgage professionals, this jobs report adds uncertainty to the outlook for rates and housing demand.

Despite September’s strong numbers, Canada lost 45,900 jobs over the past three months, and employment is up just 22,000 positions, or 0.1% since January.

Wages grew 3.3% year-over-year, but total hours worked slipped 0.2% in September.

The Bank of Canada’s next decision depends on whether this job growth lasts. Housing and other rate-sensitive sectors could see higher rates for longer if the labour market stays strong, but ongoing weakness might still push the central bank to cut.

CMP

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