Canada Jobless Rate Dips, Firming Case for Gradual Rate Cuts

The Canadian labour market has shown resilience, with the unemployment rate falling to 6.5% in September, according to Statistics Canada. This decline, the first since January, was driven by a surge in full-time positions and strong private sector job growth. The report bolsters the Bank of Canada's case for gradual rate cuts and raises hopes for a soft landing.

The jobless rate dropped as the economy added 46,700 new roles, surpassing economist expectations of a 27,000 gain. Full-time positions surged by 112,000, offsetting a decline of 65,300 part-time roles. The private sector led the growth, adding 61,200 jobs. The labour force grew by a modest 15,900 people, reflecting a slower increase in Canada's population since the pandemic.


The data suggests surprisingly strong labour demand, despite the Bank of Canada's rate cuts. This report strengthens the central bank's case for gradual rate reductions, as it aims to tame inflation without a deep downturn in employment. Canadian bonds initially underperformed after the release, with yields rising and the loonie surging before paring gains.

The report also showed a slowdown in wage growth, to 4.5% annually from 4.9% previously. This may ease concerns about inflationary pressures. Before the report, traders in overnight swaps put the chances of a 50 basis-point cut at the central bank's next meeting on Oct. 23 at about 50%. Those odds fell on Friday morning.


The information, retail, and culture sectors, as well as wholesale and retail trade, led the job gains. In contrast, education, health care, and public administration sectors saw job losses. The report is the last labour force survey before the next rate decision, with inflation figures due on Tuesday. Most economists expect a 25 basis-point cut at the bank's Oct. 23 decision.

The decline in the unemployment rate has positive implications for consumer confidence and spending habits. Lower unemployment rates typically boost consumer confidence, leading to increased spending and economic growth. However, it is essential to monitor the labour market's resilience and its influence on business investment decisions to ensure sustained economic growth.