By Robb M. Stewart

OTTAWA–The strongest hiring in Canada in seven months wasn’t enough to stop the jobless rate from rising to its highest since the worst of the pandemic lockdowns, possibly setting the central bank up for another outsize interest-rate cut next week.

Canadian employers added 50,500 jobs last month, Statistics Canada reported Friday. That was double the rise expected by economists, and considerably higher than the average of roughly 27,000 jobs added a month over the last year.

Yet with the labor force ballooning again as surging immigration continues to swell the population, the unemployment rate climbed 0.3 percentage point, to 6.8%. Excluding the peak pandemic years, that marks the highest rate in almost eight years.

Growth in the pool of available workers in Canada has outpaced job creation throughout the year, adding slack to a labor market that is being watched closely by Bank of Canada officials. The labor data is the last major economic indicator policymakers will collect before they decide on interest rates Dec. 11. In a speech late last month, central bank Deputy Gov. Rhys Mendes highlighted the November employment numbers would play a role in determining policy.

With the latest data, market pricing now anticipates a roughly 75% chance of a half percentage point cut in the central bank’s overnight rate next week, where the odds previously were at about 50%. Government-bond yields dropped and the Canadian dollar fell, though U.S. jobs numbers also released Friday were viewed as in keeping with a quarter-point cut by the Federal Reserve this month.

Bank of Montreal’s economists switched their prediction for the Bank of Canada’s next move, and now anticipate a half-point drop Dec. 11. “When the facts change, we change, and the sharp rise in the jobless rate is a big change, especially after two months of calm,” Bank of Montreal chief economist Douglas Porter said.

The number of Canadians looking for work or on temporary layoff in November jumped by 6.1%, bringing the number of unemployed to 1.52 million. The country’s unemployment rate has trended higher since April 2023, rising 1.7 percentage points in that time. The rate is now 2 points higher than the lows seen in 2022 after Covid-19 lockdowns were lifted.

The proportion of long-term unemployed has increased alongside the unemployment rate, with nearly 22% of Canadians continuously unemployed for 27 weeks of more last month, a jump of almost 6 percentage points from a year earlier. Still the rise in the jobless rate largely reflects new entrants to the labor force, and the share of unemployed people who lost their job or voluntarily left a previous job both fell year-over-year.

Canada’s labor force in November surged by 137,800, the most on record outside the pandemic years, and as risen by 605,000 on an annual basis.

While jobs gains beat expectations, the public sector accounted for almost 90% of the jobs added in November. Over the last year, private-sector hiring has greatly lagged, while the number of workers stepping into public healthcare and education roles in particular has been strong.

Nathan Janzen, assistant chief economist at Royal Bank of Canada, said that while the details of the latest labor-force survey were mixed the rise in the unemployment rate alongside a swift slowing in wage growth should reinforce that interest rates are higher than they need to be to keep annual inflation at the Bank of Canada’s 2% target. Royal Bank’s base case remains a half-point cut next week.

The U.S. labor market also bounced back last month, as workers sidelined by hurricanes returned to work and thousands of striking Boeing employees ended their walkout. The U.S. added 227,000 jobs for the month, though the unemployment rate ticked up to 4.2% from 4.1%.

When calculated using U.S. Labor Department methodology, Canada’s unemployment rate was similarly 0.3 point higher, at 5.9%.

The recovery in Canadian job growth after just 14,500 jobs were added to the economy in October follows a recent pickup in monthly hiring intentions and improvement in business sentiment in the wake of four successive interest-rate cuts by the Bank of Canada since June, including the larger-than-usual half point move at the last policy meeting in October. The federal government has taken steps to slow immigration that are expected to see the population dip from next year.

Not all analysts are sold on the case another big rate cut is needed to reinvigorate the lackluster economic growth of late.

“The jump in the unemployment rate overstates the weakness in today’s report,” Royce Mendes, head of macro strategy at Desjardins, said.

He argues the strong increase in employment outweighs volatility in labor force participation, as well as a slight fall in hours worked for the month due to labor disputes. Desjardins continues to look for a quarter-point cut next week, followed by five more similar-size cuts in 2025.

Research firm Capital Economics similarly expects a smaller cut, and believes the Bank of Canada’s governing council will take comfort from recent improvements in labor-market surveys that imply hiring should remains stronger than in past months.

Full-time work for a third-straight month accounted for the bulk of hiring in November, though much of that came in wholesale and retail trade and construction and offset falls in other sectors including manufacturing and transportation and warehousing.

Labor force participation–the proportion of the working-age population employed or looking for work–increased 0.3 point, to 65.1%, in the latest month, which offset the cumulative decline in the previous two months. The employment rate, which is the proportion of Canadians 15 and older who are employed, held steady in November, at 60.6%, after falling for six consecutive months.

Write to Robb M. Stewart robb.stewart@wsj.com

(END) Dow Jones Newswires

12-06-24 1228ET