Statistics Canada is set to release its October jobs report on Nov. 8, with economist forecasts centering on a weakening labor market. This could support the Bank of Canada making another super-sized interest rate cut.
Analysts project the nation’s jobless rate to rise to 6.6%, according to FactSet. This would return the figure to August levels after a one-tenth drop in September. The report is also expected to show a 25,000 increase in hiring across Canada, a slowdown from the 47,000 new jobs added in September.
However, the unemployment rate is widely expected to continue to rise, despite an unusual downtick in September, reaching a peak of 7% in the first quarter of 2025, according to a BMO Economics forecast.
Desjardins macro strategist Tiago Figueiredo says that since labor supply continues to outpace demand, Canada will see another uptick in the unemployment rate in the report. “Employers are more cautious on hiring new employees but want to hold on to existing employees,” he explains.
There is a growing consensus among economists that a confluence of factors—including the stalled economy, low inflation, and a further softening in the labor market—justifies the Bank of Canada making another half-point rate cut at its Dec. 11 meeting.
The trend of slower economic growth driving modest employment gains will likely continue, according to Benjamin Reitzes, managing director and Canadian rates and macro strategist at BMO Capital Markets. He forecasts a job gain of 25,000, in line with the past year’s trend and the consensus.
Canada added 47,000 jobs in September, marking a drop in the unemployment rate, which had steadily climbed over the past year and a half. That month also saw full-time employment clocking its largest increase since May 2022. “One notable aspect of the past two months of data is that despite a continued surge in population growth, labor force growth has been muted,” says Reitzes, who forecasts the jobless rate to tick higher to 6.6% in October from 6.5% in September. He adds that a significant deterioration in employment rates “has the potential to ramp up speculation of another outsized rate cut from the BoC in December.”
Figueiredo estimates the Canadian economy could add 30,000 new jobs over the month and sees labor market growth taking hold. “With the monetary easing cycle well underway, there are nascent signs of a pickup in economic activity, which should translate into a reacceleration in the labor market,” he says. However, he cautions that labor supply may have outpaced demand, which “should push the unemployment rate one tick higher to 6.6%.”
Reitzes expects the report will show recent trends continuing, “with gains in services sectors, while goods sectors remained mostly flat for the past two years.”
Further, a weaker jobs market and monetary easing add downward pressure on the Canadian dollar, affecting the export industry. “Currency weakness helps boost domestic economic activity through exports while shifting demand from relatively more expensive imports toward more domestic goods,” explains Figueiredo.
Monetary policy watchers say a weak jobs report could sway the Bank of Canada’s next rate decision.
“A further loosening in the labor market, primarily through a higher unemployment rate, would increase the odds of a 50-basis-point [cut] for a second straight [Bank of Canada] meeting in December,” says Reitzes, though he anticipates a 25-basis-point cut next month.
Figueiredo expresses similar views but insists that “the market is still pricing a 50% chance of a larger rate cut in December.” He expects “the unemployment rate to peak this winter before falling next year as rate cuts take effect.”
If the labor data shows additional weakness, the Bank of Canada may feel more justified in further rate cuts, with possible implications for Canadian markets. “Lower rates will benefit bond-proxy sectors in equity markets such as consumer staples, utilities, REITs, and telecommunications,” says Ben Jang, portfolio manager at Nicola Wealth. He adds that the broader market could decline.
Concerns over global growth and potential recession also underscore opportunities in industrial stocks. Jang thinks slowing growth fears may trigger a market selloff, but he assures “we don’t anticipate an extremely large move in Canada, as fundamentals remain reasonably strong.”
A weak jobs report could also drive long bond yields lower, especially amid continued divergence between the US and Canadian economies. “This would begin handcuffing Canadian policymakers and might result in a yield curve flattening or re-inversion,” Jang explains.
Jang thinks that if a notably negative surprise in October jobs data pushes the Bank of Canada toward making larger rate cuts to counter economic troubles, it would likely weaken the Canadian dollar. Reitzes forecasts that such a scenario would mean “modest further weakness in the loonie.”
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