Canada Employment Preview: Forecasts from five major banks, deterioration in labour market conditions

Job creation may have slowed to 15K in October, reflecting a loss of momentum in the Canadian economy. This modest gain, combined with another significant expansion of the labour force and an unchanged participation rate (65.6%), should translate into a two-tenth increase in the unemployment rate, to 5.7%.

Labour demand has continued to slow with job openings still drifting lower. We look for another 15K increase in employment in October but alongside a tick higher in the unemployment rate to 5.6%.

Job growth in Canada should slow in October after a very strong ~64K jobs added in September, but we still expect a solid increase in employment of 35K. However, given the trend of substantial population growth, this would still imply a slight increase in the unemployment rate to 5.6% assuming the participation rate remains unchanged. Rather than headline jobs figures, wages will be the most important aspect of the October employment report. After slowing somewhat earlier in the year, wage growth has reaccelerated in recent months and remains around 5% on a YoY. The BoC has consistently cited wage growth of 4-5% as too strong to be consistent with 2% price inflation, with wages as one of the key factors they will be watching to gauge the possibility of further hikes.

While employment surged in the prior month, most of the increase was driven by education which can be volatile at the start of a school year, and because of that there is the risk of a notable deceleration in October. The 20K increase in employment we expect for October would be below the still rapid pace of population growth, and result in a tick up in the unemployment rate to 5.6%. While that move up in the jobless rate, combined with further reductions in job vacancy postings, would highlight a continued loosening of labour market conditions that have probably not gone far enough to slow wage growth yet. We expect wage growth to remain above 5% on a year-over-year basis in October.

We look for job growth to slow to 25K in October, slightly below the 6m trend and in line with the market consensus, as the unemployment rate edges higher to 5.6% and wage growth ticks lower to 5.2% YoY. This would give the Bank of Canada some additional evidence that higher rates are working to rebalance the economy but will not be enough to change their broader assessment of labour market conditions or the balance of risks going forward.