Canada’s economy added 108,000 jobs in October, beating earlier expectations in a sign of resilience

Canada’s economy showed resilience in October as it added plenty of jobs, more than making up for lost positions during the summer lull.

Employment jumped by 108,000 in October, well above the 10,000 expected by financial analysts, Statistics Canada said Friday. Combined with a modest increase in September, the recent rise has pushed total employment to an all-time high. The unemployment rate remained at 5.2 percent, as more people entered the labor market.

Bond yields rose in response to the report, as did bets that the Bank of Canada will raise its key interest rate by half a percentage point at its next meeting in December, just as it did last week.

It was a similar story in the US, which added 261,000 jobs in October, beating expectations of 195,000.

Interest rate hikes are starting to have a negative impact on the labor market, even in the midst of a labor shortage

Analysts were encouraged by the details of the Canadian report: Jobs were created entirely in full-time positions and mostly in the private sector. Working hours increased by 0.7 percent, an early sign of economic growth remains positive in the last quarter as well.

At the same time, compensation rose again. The average hourly wage rose 5.6 percent last year from 5.2 percent in September, which is the fifth month in a row above 5 percent.

The increase in wages is likely to catch the attention of the Bank of Canada. The central bank recently hinted that its campaign of outsized rate hikes was coming to an end. However, according to Friday’s report, labor demand is strong and employers are willing to pay – a potential concern, as rising wages put more pressure on consumer prices.

The employment gains “make a mockery of claims the economy is on the brink of recession, and with wage growth picking up sharply despite favorable fundamentals, the Bank of Canada may need to raise interest rates more than it has recently suggested.” Stephen Brown, chief Canadian economist at Capital Economics, said in a client note.

Traders are pricing in a 65 percent chance the Bank of Canada will raise its key interest rate by 50 basis points on Dec. 7. (The base point is one 100 percentage points.) Before the jobs report, these coefficients were around 50 percent.

The central bank last week raised its key interest rate by half a percentage point to 3.75 percent, a move that surprised traders and private sector economists who had expected a steeper 75 basis point hike. At the time, the central bank predicted that economic growth would stop – and perhaps turn negative – soon.

“We expect growth to stagnate over the next few quarters — in other words, to be close to zero,” Bank of Canada Governor Tiff Macklem said.

Friday’s labor force report belied the weak outlook. The unemployment rate, at 5.2 percent, is close to the lowest on record, while the number of people participating in the labor force rose by 110,000.

Several industries also made big gains. Construction jobs increased by almost 25,000, followed by industry (23,800) and the restaurant industry (18,300). Jobs increased in every province, paced by Ontario (43,000) and Quebec (28,000).

“This jobs report checked all the boxes to be a blowout report,” Toronto-Dominion Bank economist Rishi Sondhi said in the report. “There is clearly still some steam left in the Canadian labor market.”

However, there were signs of people struggling because inflation is still high. More than a third of Canadians live in a household that has a hard or very hard time meeting their financial needs, whether it’s paying for food, housing or other necessities, Statscan found. In October 2020, about a fifth were in this position.

Despite the recent increase in wages, they are still lagging behind inflation. In September, the consumer price index rose by 6.9 percent from the previous year, decelerating from June’s nearly four-decade high inflation of 8.1 percent. Most of the downward trend is due to lower gasoline prices, although they have risen again in recent weeks.

On Friday, the Bank of Montreal said it expects the Bank of Canada’s key interest rate to rise to 4.5 percent next year, up from a previous forecast of 4.25 percent. Doug Porter, chief economist at BMO, pointed to several factors for the revised outlook: Friday’s strong jobs report, continued strong inflation, a rebound in oil prices and the likelihood that US interest rates will move much higher.

With a Reuters report