October’s jobs report will leave the Bank of Canada more “comfortable” with its decision to keep interest rates at 5 per cent, economists say.
Statistics Canada’s Nov. 3 employment report showed the unemployment rate jumped from 5.5 per cent to 5.7 per cent, more than expected. The economy generated a net gain of 17,500 jobs, below estimates of 25,000.
“The rise in the unemployment rate suggests that some slack is gradually building up in the labor market, which should help alleviate some of the upward pressures on wages,” said Charles St-Arnaud, chief economist at Central Alberta. .
Average hourly wages, which declined to a 4.8 percent year-on-year increase from five percent in September, will also be on the central bank’s radar.
These numbers are important because policymakers believe that a tight, overheated labor market and rising wages fuel demand and inflation.
When it held rates on Oct. 25, the central bank said: “The Governing Council wants to see downward momentum in core inflation and continues to focus on the balance between supply and demand in the economy, inflation expectations.” , wage growth and corporate prices. behavior.”
Simon Harvey, head of currency analysis at Monex Europe and Canada, said the slowdown in wage growth “should translate into a continued decline in the BoC’s core inflation measures.”
Here’s what economists say about the latest jobs numbers and what they mean for the Bank of Canada and interest rates.
Andrew Grantham, CIBC Economics
“Weakness in economic activity appears to be slowly filtering into a weaker labor market, with slightly weaker employment growth and a slightly higher-than-expected unemployment rate in October. . . . Overall, today’s report is further evidence that further rate hikes are not necessary to cool the economy and, combined with a weaker US figure, could also push market expectations for interest rate cuts earlier. at the beginning of 2024.”
Olivia Cross, Economics of Capital
“The more modest increase in employment and essentially unchanged hours worked in October suggest that labor demand is gradually declining. And with the unemployment rate rising again thanks to strong labor supply growth, the Bank of Canada should feel more confident that wage pressures will continue to ease.”
When to expect a Bank of Canada rate cut
What economists say about GDP
James Orlando, TD Economic
“When the Bank of Canada decided to keep rates at five per cent last week, it did so because of a notable slowdown in economic momentum. While this has been evident in reduced consumer spending and a weakening housing market, the labor market left the BoC wanting more. But, given the rising unemployment rate and continued weakening of underlying details, today’s report is likely to make the BoC more comfortable with its decision to hold its rates. Looking ahead, we expect this employment trend to continue, while high rates and persistent inflation justify the BoC remaining on hold in December.”
Charles St-Arnaud, Central Alberta
“With some progress made in October to create some slack in the labor market and slower wage growth, the likelihood of further rate increases in the near future has decreased. “Our view remains that the policy rate has likely peaked and that the Bank of Canada will stand by and watch as previous rate increases work their way through the economic system and reduce inflationary pressures.”
Nathan Janzen, RBC Economics
“The BoC will remain cautious about easing the brakes on monetary policy as long as inflation remains high. But signs of weakening in labor markets should reinforce the decision to pause rate hikes for now and increase the odds that the next rate change will (eventually) be a cut. “Our own base case assumes that the overnight rate will begin to gradually decline in the second half of next year.”
Simon Harvey, Head of Currency Analysis, Monex Europe and Canada
“The resurgence of slack in the labor market is… beginning to weigh on wage growth, which fell from 5.2 percent to five percent year-over-year (for permanent employees). This should translate into a continued decline in the BoC’s core inflation measures, which, if confirmed, would support our view that the BoC has concluded its hiking cycle and will now rely on below-potential growth to guide inflation back. to your target. This focuses the market’s attention on when the next policy change will occur. In this case, it is an interest rate cut. In our view, the Bank of Canada is unlikely to ease its monetary policy before the second quarter of next year, but there is a risk that, if growth conditions subside and lead to a more substantial slowdown in the labor market, thus weighing on wage growth and consumption prospects for 2024, the Bank of Canada is forced to make its policy more flexible until it becomes neutral already in the first quarter.”
Tu Nguyen, RSM Canada
“Combined with GDP data from earlier this week, the October jobs report shows that the Bank of Canada’s previous rate hikes are effectively cooling the economy, and no further rate hikes would be necessary.”
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