The Canadian economy added jobs at a slower pace in October and the unemployment rate ticked up, the latest sign of how higher interest rates are weighing on economic activity.
The labour market added 17,500 jobs last month, after increases of nearly 64,000 positions in September and 40,000 in August, Statistics Canada said Friday in a report. Analysts on Bay Street were expecting a gain of 25,000 in October.
Despite the increase, the unemployment rate rose to 5.7 per cent from 5.5 per cent, the highest level since January, 2022. The labour force is expanding quickly, because of an immigration boom, but employers are not creating enough jobs to keep the jobless rate from rising.
Meanwhile, average hourly wages rose 4.8 per cent on an annual basis in October – down from a 5-per-cent pace in September. This is an encouraging sign for the Bank of Canada, which has repeatedly flagged elevated wage growth as a risk to the inflation outlook.
The economic data have softened in recent months: Gross domestic product has stagnated, job vacancies are falling and consumers are pulling back on purchases as businesses and households contend with the highest borrowing rates in more than two decades.
After Friday’s report, analysts said the Bank of Canada was unlikely to raise its benchmark interest rate any further from its current 5 per cent.
“While the headline job gain was uneventful, make no mistake that the underlying picture for Canada’s labour market is softening. Exhibit A on that front is the grinding rise in the unemployment rate,” Bank of Montreal chief economist Doug Porter wrote to clients.
He added: “This will keep the Bank of Canada pinned more fully to the sidelines, although we still believe that rate relief remains a distant prospect.”
The labour report showed mixed results by region and industry. Alberta added 37,700 positions in October, the most of any province. At the other end, employment fell by 22,100 in Quebec and 14,300 in Ontario. Because of the weakness in Quebec, Saskatchewan now has the lowest unemployment in the country at 4.4 per cent.
Employment rose by 23,000 in construction, the most by industry. Manufacturing shed 18,800 roles, while another 21,700 positions were lost in wholesale and retail trade.
After hitting a record low of 4.9 per cent last year, the unemployment rate has been moving higher. Statscan noted there were 1.2 million unemployed persons in October, an increase of 171,000 since April. The agency noted that among those unemployed in September, 60 per cent remained unemployed in October, a greater proportion than a year ago.
This is “an indication that job seekers are facing more difficulties finding employment than a year ago,” the report said.
In October, one in three Canadians aged 15 and older was living in a household that found it difficult or very difficult to meet its financial needs for necessary expenses over the previous four weeks, Statscan said on Friday. This proportion was down slightly from a year ago (35.5 per cent), but was much higher than three years ago (20.4 per cent).
The annual inflation rate has ebbed to 3.8 per cent from a peak of 8.1 per cent last year. Still, the Bank of Canada doesn’t expect inflation to return to its 2-per-cent target until mid-2025. Moreover, price increases remain elevated for necessities such as food and shelter.
From a labour perspective, the coming months could be challenging for job seekers.
“We suspect that given the weak trend in economic activity currently and its implications for labour demand, job growth will continue to lag that of the overall population for the remainder of this year and into 2024,” said Andrew Grantham, senior economist at CIBC Capital Markets, in a report.
Mr. Grantham said the unemployment rate could rise further and peak somewhere between 6 per cent and 6.5 per cent. “That should help to ease wage and overall inflationary pressures, allowing for interest rate cuts to start” in the second quarter of 2024, he said.