Economists split on whether labour market slack rules out a December increase
Money markets priced a 35 percent chance of a quarter-point Bank of Canada hike at the December 9 decision after Canada shed 4,700 jobs in October and the unemployment rate rose 0.2 percentage points to 6.7 percent, The Canadian Press reported, citing LSEG Data & Analytics.
Statistics Canada showing private sector employment down 53,000, the first decline since February, against a 50,000 gain in the public sector.
A Reuters poll of economists had forecast a gain of 13,600 jobs.
Markets had already cut the odds of an October increase to about 25 percent following the September labour data before the central bank raised its policy rate to 2.5 percent.
Andrew Hencic, director and senior economist at TD Economics in Toronto, wrote in a note published the same morning that “we’re now at three months and counting for downbeat labour market reports,” adding that “ongoing labour force growth means there is growing slack in the labour market.”
The Bank “delivered a risk management rate hike and hawkish signaling a little over a week ago,” Hencic wrote, and “weak earnings growth in the here and now suggests consumers have limited capacity to absorb higher prices.”
Derek Holt, head of capital markets economics at Scotiabank in Toronto, took the opposite read in his Scotia Flash note.
“Markets scaled back December hike odds to just over one-in-three odds. I’ll explain why I think that’s a mistake,” Holt wrote.
He attributed two-thirds of job losses over the past three months to workers aged 15 to 24.
On the public sector swing, he said payroll employees there rebounded by about 50k, then dismissed it with “yeah right,” saying he believes the rebound as much as he believed the 70k drop the prior month.
Thomas Ryan, senior North America economist at Capital Economics, told clients in a note carried by The Canadian Press that the data “adds to our conviction that the bank will hike rates no more than twice more as a precaution against upside inflation risks, before calling it a day.”
Andrew Grantham, senior economist at CIBC, said in a statement to Global News that “the recent trend in the labour market suggests that slack is opening up again in the economy and supports a hold at that time.”
In a separate interview with The Canadian Press, Grantham said the labour market shows “some weakness” outside trade-sensitive areas. Grantham called that a concern right now.
“When you’re getting a slowing in the wage trend of this magnitude, it’s telling you that the disinflationary output gap is widening,” David Rosenberg, president of Rosenberg Research and Associates in Toronto, told the Financial Post.
He said Bank of Canada governor Tiff Macklem “should realize that the odds of any energy spillover are minimal at best, judging from what’s happening in the labour market and the visible slowing pattern in nominal wages.”
Rosenberg and RBC Economics both expect a hold at 2.5 percent in December, the Financial Post reported.
Holt’s note read the same series differently, recording wage gains of “4.6% m/m SAAR in October and 5.5% in September.”
Nathan Janzen, assistant chief economist at RBC Economics, called the monthly numbers “extremely volatile” in a Financial Post interview.
“It was a little bit of a downside surprise, but if you look at the details, the employment declines were not broad-based,” Janzen said.
Avery Shenfeld, chief economist at CIBC Capital Markets in Toronto, told CTV News he does not yet read the data as a sign that we’re going into recession. Shenfeld said CIBC expects fourth-quarter growth to be quite sluggish.
