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Canada’s unemployment rate jumped 0.3 percentage points to 6.8 per cent while the economy added a net 50,500 jobs in November, according to Statistics Canada data released on Friday, raising the odds of a jumbo-sized interest rate hike next week. The unemployment rate is now at the highest level since Jan. 2017, excluding the COVID-19 pandemic, and has risen 1.7 percentage points since April of last year.
Markets increased the odds of a 50 basis point rate cut from the Bank of Canada on Friday, from 55 per cent before the report came out to 68 per cent, according to Reuters. A 25-basis point cut is fully priced in.
The jump in the unemployment rate came as job growth fails to keep up with Canada’s population surge, leaving more people looking for work. The labour force grew by 137,800 people in November, more than double the increase in jobs. The number of unemployed people, either those looking for work or on temporary layoff, increased by 87,000 in November, according to Statistics Canada. The data agency said that the number of unemployed people is up 22.2 per cent on a year-over-year basis, to a total of 1.5 million.
The jobs gain, which was double what economists expected, was driven by an increase in full-time work. Economists had expected a job gain of 25,000, according to analysts polled by Reuters, and the unemployment rate to rise to 6.6 per cent.
The November jobs data is the last report before the Bank of Canada issues its final rate decision of the year on Dec. 11. While economists widely expect the central bank to cut its benchmark interest rate for the fifth consecutive decision, they are split on whether rates will be slashed by 25 or 50 basis points.
CIBC is one bank that believes the Bank of Canada will cut by 50 basis points next week. While the jobs gain was well above expectations, CIBC economist Andrew Grantham wrote in a research note on Friday that “the detail was generally less positive.” He pointed to the gain in full-time jobs being driven by public sector growth, while private sector hiring increased more modestly, as well as the increase in the unemployment rate.
“Today’s data was the final piece of the puzzle before next week’s Bank of Canada decision, and even though the piece didn’t fit perfectly, we still see the picture of a struggling economy that needs the help of another 50 basis point reduction in rates,” CIBC economist Andrew Grantham wrote in a research note on Friday.
Corpay chief market strategist Karl Schamotta also expects the Bank of Canada to move more aggressively next week with a 50 basis point cut.