Canadian Unemployment Rate Rises as Economy Fails to Generate New Jobs   

• Canada’s economy lost 4.7k jobs in October (0.0% m/m), significantly undershooting consensus expectations for a 15k gain. Full-time employment fell by 18.1k, while private-sector employment declined by 52.5k.
• The unemployment rate rose two ticks to 6.7% from 6.5%, marking a second consecutive monthly increase. The job finding rate (18.9%) remains below the average for the same months from 2017-2019 (24.6%). A silver lining is the core aged unemployment rate for both men (5.8%) and women (5.3%) was unchanged for the month. The labour force expanded by 28k, while the labour force participation rate was unchanged at 64.8%.
• Job losses were led by wholesale and retail trade (-29k), while construction (+16k) and educational services (+15k) posted the largest gains highlighted in the report.
• Average hourly wages rose 2.2% y/y in October, easing slightly from 2.3% y/y in September.

Key Implications

• Well, we’re now at three months and counting for downbeat labour market reports. The past two months featured large job losses, while October’s report showcased a weak job finding rate and ongoing labour force growth means there is growing slack in the labour market. Reinforcing the notion is the ongoing weakness in average hourly earnings – a signal that labour demand is not yet outstripping supply.
• The Bank of Canada delivered a risk management rate hike and hawkish signaling a little over a week ago. Since then, GDP growth has disappointed to the downside, the labour market has shown it is still struggling, and financial markets have sold off. The Bank highlighted the risks to inflation from energy price pass through and stronger growth projections, but weak earnings growth in the here and now suggests consumers have limited capacity to absorb higher prices. Economic momentum is expected to be soft to close out the year, so the key question is whether businesses will be able to pass on higher costs in a weak wage growth environment. Markets are responding to the downside risks, lowering the odds of a January hike to 77% from 96% yesterday.