‘Break in the cooling trend’: Jobs report tops economists’ expectations in September

The Canadian labour market exceeded many economists’ expectations in September, adding more than twice as many jobs as the previous month while unemployment ticked lower. 

Statistics Canada reported on Friday that the economy added 47,000 jobs in September, while the unemployment rate declined for the first time since January to 6.5 per cent.

The overall job gains followed four consecutive months of little change, the agency said.

The report was stronger than expected, said Leslie Preston, managing director and senior economist at TD. 

But she cautioned that the monthly jobs report can be volatile, and that the longer-term trend in Canada’s labour market has been downward. 

“I would probably characterize this as a break in the cooling trend in the labour market,” she said.

Economists polled by Reuters had forecasted employers added 27,000 jobs in September and expected the unemployment rate to have ticked higher to 6.7 per cent.

The “hearty” jobs increase confounded the narrative that Canada’s job market has been weakening, said BMO chief economist Douglas Porter in a note, with the unemployment rate declining unexpectedly and full-time employment soaring. 

“Basically, this report runs pretty much counter to every assumption most analysts had on the Canadian job market,” he said.

Statistics Canada reported youth and women aged 25 to 54 drove employment gains last month, while full-time employment saw its largest gain since May 2022. 

Youth employment “has been a key area of weakness for some time now,” said Preston.

The report did little, however, to change economists’ expectations for the Bank of Canada to keep cutting its benchmark interest rate after three cuts so far this year. The bank’s key rate now stands at 4.25 per cent.

The unemployment rate has been steadily climbing over the past year and a half, and in August, headline inflation hit the Bank of Canada’s two-per-cent target, its lowest level in more than three years.

Though there have been some market bets that the central bank will announce a larger-than-usual cut of half a percentage point later this month, Preston said TD’s forecast is unchanged at a quarter of a point. 

The Bank of Canada’s next rate decision is Oct. 23.

“I think the Bank of Canada would need to see a more rapid worsening in Canada’s economic outlook to move to a (50-basis-point cut),” said Preston. 

Not everyone agrees. RBC assistant chief economist Nathan Janzen wrote in a note Friday that the bank’s forecast is for a half-percentage-point cut in October, and another in December. 

“Details behind the September job numbers were far more mixed than the headline employment and unemployment rate readings alone would imply,” he wrote. 

Despite the job gains in September, the employment rate was lower in the month, reflecting continued growth in Canada’s population.

Statistics Canada said since the employment rate saw its most recent peak at 62.4 per cent in January and February 2023, it’s been following a downward trend as population growth has outpaced employment growth.

On a year-over-year basis, employment was up 1.5 per cent in September, while the population aged 15 and older in the Labour Force Survey grew 3.6 per cent.

Porter noted that despite the positive news in Friday’s report, there were some “flashes of softness,” namely in the lower total hours worked and the lower participation rate. 

Service sectors accounted for all the gains in September, he said. 

The information, culture and recreation industry saw employment rise 2.6 per cent between August and September, after seven months of little change, Statistics Canada said, with the increase concentrated in Quebec.

The wholesale and retail trade industry saw its first increase since January at 0.8 per cent, while employment in professional, scientific and technical services was up 1.1 per cent.

Average hourly wages among employees rose 4.6 per cent year-over-year to $35.59, a slight slowdown from the five-per-cent increase in August.

The unemployment rate among Black and South Asian Canadians between 25 and 54 rose year-over-year in September and was significantly higher than the unemployment rate for people who were not racialized and not Indigenous.

Black Canadians in that age group saw their unemployment rate rise to 11 per cent last month while for South Asian Canadians, it was 7.3 per cent. For non-racialized, non-Indigenous people, it rose to 4.4 per cent.