Bank of Canada 50-bps-cut not a ‘sure thing’: Economists on the jobs numbers

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Jobs data for September came in stronger than expected, as the economy created almost double the number of positions forecast by economists, pushing the unemployment rate down to 6.5 per cent from 6.6 per cent — the first time it has fallen since the start of the year.

Economists are looking to the jobs numbers to help the Bank of Canada decide whether to cut interest rates by 50 basis points at its next meeting on Oct. 23 or stick with the standard quarter-point cut.

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Here’s what economists are saying about the jobs numbers and what they mean for the next Bank of Canada interest rate cut.

Details dull ‘headline glow’: Rosenberg Research

“The underlying details take the shine off the headline glow” of Canada’s latest jobs numbers, David Rosenberg, founder of Rosenberg Research, said in a note.

If the participation rate had not dropped, Rosenberg estimates that the unemployment rate would have risen to 6.7 per cent, matching economists’ estimates.

In another sign of growing labour market slack, the employment-to-population ratio slipped to the lowest rate since July 2021 “when the (Bank of Canada) policy rate was pressing against the zero bound,” he said.

Furthermore, people who are unemployed are remaining so for longer, said Rosenberg, noting that the number of people looking for a job for at least six months continues to rise.

The odds of a 50-basis-point rate cut by the BoC are lower on this report at the coming policy meeting, and a 25-basis point trimming (which would be the fourth in a row) is more likely,” he said.

‘Weaker details’: CIBC

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“The Canadian labour market sent mixed signals in September, as a strong 47,000 jobs were added, above the 27,000 expected, but the headline masked some weaker details,” Katherine Judge, an economist at CIBC Capital Markets, said in a note.

Among the “weaker details,” the number of hours worked fell 0.4 per cent from August, while the employment and participation rates pulled back as well.

Judge said the drop in the participation rate was a sign that workers are becoming “increasingly discouraged” in their search for a job.

“Overall, the mixed report isn’t enough to make a 50 basis point cut a sure thing in October,” she said. “The CPI (consumer price index) report next week could still make that outcome possible, if they (the numbers) look soft enough.”

‘Not as good as it looks’: Capital Economics

Stephen Brown, deputy chief North America economist at Capital Economics, attributed the increase in jobs and the drop in the unemployment rate to a “seasonal quirk,” as a weaker summer jobs market for young workers meant fewer left positions than usual at the start of the school year.

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Of special note to the Bank of Canada, however, will be the gains in private sector employment, “which the bank is paying close attention to,” Brown said. Employment in that sector rose 61,000 last month — a second consecutive increase. Year over year, it’s up by 193,000 or 1.5 per cent.

Brown also highlighted that average hourly wage increases slowed to a “16-month low” of 4.6 per cent.

“Overall, the September Labour Force Survey reduces the chance of a 50 basis point cut later this month,” Brown said.

‘Won’t change our call’: Desjardins

“A healthy increase in jobs won’t change our call that central bankers will cut rates by 50 basis points later this month,” Royce Mendes, managing director and head of macro strategy at Desjardins Group, said in a note.

Despite the surprise job gains, Mendes said there was plenty of evidence of labour force weakness to push the Bank of Canada to cut rates by a bigger amount

For example, the decline in the unemployment rate was due to a drop in the number of people working or looking for work.

He also noted that population outran hiring in September with employment up 1.5 per cent year over year, while those aged 15 and older in the workforce rose 3.6 per cent.

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Also on the negative side, the unemployment rate for those aged 25 to 54 rose to 5.5 per cent from 5.4 per cent in August.

“Outside of the pandemic, that’s the highest level since 2017, and indicates growing slack among that more critical demographic,” he said.

Give that hours worked are down, Mendes said gross domestic product for the third quarter is tracking at 1.2 per cent annualized, well below the Bank of Canada’s forecast for 2.8 per cent.

“We are retaining our call that monetary policymakers will need to step up the pace of easing,” he said.

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