Canada job gains triple expectations, wages grew faster

Canada’s labour market blew past expectations for a third straight month while wage growth accelerated, doing little to quell some bets for another hike amid stubborn price pressures.

The country added 63,800 jobs in September, while the unemployment rate stood at 5.5 per cent, where it’s been since July, Statistics Canada reported on Friday (Oct 6) in Ottawa. The figures beat expectations for a modest gain of 20,000 positions and a jobless rate of 5.6 per cent, according to the median estimates in a Bloomberg survey.

Wage growth for permanent employees rose to 5.3 per cent, also beating expectations of 5.1 per cent and up from 5.2 per cent a month earlier. That’s also the third consecutive month of acceleration.

“With these 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,” Jay Zhao-Murray, an analyst at Monex Canada, said in an email.

Friday’s report came at the same time as jobs data in the US, which showed employment surging in September by the most since the start of the year. The loonie extended its drop after the releases, trading as much as 0.3 per cent lower than the US dollar after the data but later curbed its descent to 0.1 per cent, trading near 1.3718.

The yield on Canada 2-year notes rose around eight basis points in the aftermath of jobs data, peaking through 4.90 per cent. Traders in overnight swaps upped their bets for more tightening from the Bank of Canada (BoC)– another 25 basis point hike is fully priced by March.

The data show an economy that’s still producing robust job gains and firm wage growth even in the face of higher interest rates. Bank of Canada governor Tiff Macklem views the labour market as a key indicator of the demand-supply balance in the economy and is watching for evidence, including wage growth, for signs of rebalancing.

Since Macklem and his officials paused their interest-rate increases in September, several data releases pointed to an economy that’s gearing down yet still facing persistent underlying price pressures. Policymakers were counting on a softening economy to eventually slow the pace of price gains in the coming months. But Friday’s strong jobs report may complicate that view.

“Overall, the details aren’t nearly as strong as the headline suggests, but strong wage gain won’t make the BoC comfortable,” said Benjamin Reitzes, a rates and macro strategist at the Bank of Montreal, by email. “Still, the labour market continues to slowly but surely soften, which will eventually dampen wages. The BoC’s patience is being tested.”

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Last month, total hours worked fell 0.2 per cent on a monthly basis and were up 2.6 per cent compared to a year earlier. That points to relatively weak economic momentum at the end of the third quarter, when economists surveyed by Bloomberg expect gross domestic product to expand 0.4 per cent annualised. Last week, preliminary data suggested the economy was on track to grow at half that pace, if September output is flat.

This is the last job report before the next rate decision on Oct 25. The majority of economists in a Bloomberg survey expect the bank of hold rates steady at 5 per cent, while five out of 30 forecasters see a 25 basis-point hike. In August, the labour market added 40,000 jobs, compared with an average monthly increase of 30,000 since the beginning of this year.

“While taken together the past two months have clearly shown significant strength in hiring, the September reading is weaker than the headline suggests,” said Royce Mendes, head of macro strategy at Desjardins Securities, in a report to investors. “A curious decline in hours worked also takes some shine off of the headline employment print for September.”

The upward trend in employment is happening at a time when Canada is experiencing record population growth due to high levels of immigration. In September, the population aged 15 and older increased by 82,000, or 0.3 per cent. The employment rate – the proportion of that group who are employed – rose 0.1 per cent percentage point to 62 per cent.

Job gains were led by increases in educational services as well as the transportation and warehousing sectors. But there were fewer people employed in finance and real estate, construction and information and recreation.

Employment rose in six provinces, led by Quebec and British Columbia, while it fell in Alberta and New Brunswick. BLOOMBERG