Jobless rate drops to 6.5% in September. What that means for rate cut hopes

The Canadian economy added some 47,000 jobs in September, enough to lower the unemployment rate for the first time since the start of 2024.
Statistics Canada said Friday that job gains were focused in full-time work and in the private sector, offset by losses in part-time roles and public employment.
That drove the jobless rate down a tick to 6.5 per cent, which StatCan said was the first decline since January. The unemployment rate was 6.6 per cent in August, then a seven-year high outside the pandemic years.
The information, culture and recreation sector, the wholesale retail and trade segment and the professional, scientific and technical services industries all contributed more than 20,000 job gains in September.
StatCan noted that job gains in youth helped to reverse what had been a weakening trend in the labour market for that youngest demographic of workers. Youth aged 15 to 24 added 33,000 jobs last month, driving the age group’s unemployment rate down a full percentage point to 13.5 per cent.
A particularly tough job market for youth and newcomers to Canada has been cited as a major factor driving the unemployment rate higher over recent months.
The participation rate — those working or actively looking for work — also declined 0.2 percentage points in September. StatCan said the youth participation rate in particular has been trending down since February 2023, and tends to decline in periods of high unemployment as younger people spend longer in school or otherwise delay entry into the labour force.
The average hourly wage in Canada rose 4.6 per cent year-over-year last month, easing from annual gains of 5.0 per cent in August.
With inflation back at the Bank of Canada’s two per cent target as of August, the central bank is increasingly focusing on risks to the labour market and wider economy in a bid to keep price pressures from dropping too far below those levels. The Bank of Canada has lowered its policy rate three times since June in an effort to ease pressure on the economy.
While another interest rate cut is widely expected at the central bank’s next decision on Oct. 23, economists have lately been debating whether a steeper, 50-basis-point drop is in the cards compared to the typical 25-bsis-point step.
But September’s jobs report came in stronger than many economists expected, suggesting the Canadian economy is holding up well under more restrictive interest rates.
BMO chief economist Doug Porter said in a note to clients Friday morning that the September release sends a “strong vote” for another quarter-point cut later this month. One of the strongest arguments for a half-point cut was the softness in the labour market, he said, which appears to have instead firmed up somewhat last month.
“With jobs delivering at least a one-month wonder of strength—and offering a tantalizing glimmer of hope that the economy may be pulling out of its funk—the case for an even more aggressive BoC just took a big step back,” he said.
TD Bank senior economist Leslie Preston also noted that the jobs data can be volatile, and one month of stronger results does not in itself change the picture of a softening labour market.
She agreed with Porter that bets for a 50-basis-point cut will likely be pared back after Friday’s report, but added that “data rarely moves in a straight line, and we would need to see a few more months of strength before we declare an improving trend.”
Financial markets are fully pricing in another 25-basis-point rate cut in October, according to Reuters, and odds for a 50-basis-point cut dropped to 36 per cent after the jobs data from 53 per cent earlier.
But RBC assistant chief economist Nathan Janzen said he is maintaining his calls for 50-basis-point cuts at both of the Bank of Canada’s upcoming decisions in October and December.
Oversized steps “would still make sense” after the latest jobs numbers, Janzen argued in a note, which had more weakness under the hood than the headline figures would suggest. A sharp drop in the number of job openings suggest hiring demand is still waning, and declines in hours worked show there’s more softness expected for the economy in the third quarter, he said.
Risks are still “tilted” towards inflation dropping below two per cent, Janzen said, giving the Bank of Canada plenty of runway to cut faster than the pace of its cycle to-date.
— with files from Reuters