Canada sheds 4,700 jobs in October as unemployment rises to 6.7%, a six-month high

Canada’s economy lost 4,700 jobs in October, and the unemployment rate rose to 6.7%^5,6. That is the highest jobless rate in six months^1,2.

The labor market softened again as employment dipped and the number of people hunting for work rose¹. October marked the third straight monthly decline in jobs⁷.

The figures arrived a little over a week after the Bank of Canada delivered its first interest-rate hike in more than three years⁵.

Why it matters to investors

Markets moved quickly. The Canadian dollar fell to a nearly three-week low on the surprise loss of jobs³, with the loonie trading 0.7% lower at 1.4110³. Traders trimmed their bets on further rate hikes as unemployment rose⁴, and the odds of another Bank of Canada increase fell⁶.

Economists are divided on what the central bank does next. One forecaster said, “We now expect the Bank of Canada to change its message and sound more balanced about inflation risks moving forward”². Another economist said a December hike is now in doubt because of the weak job market⁸.

Others expect the bank to press on. Most economists still expect the Bank of Canada to raise rates despite the soft October report⁷. One analyst argued that the bank “is likely to continue to desire to raise rates preemptively to avoid inflation rising above its target”⁴.

Broader growth data also point to a slowdown. Industry figures would put annualized gross domestic product growth in the third quarter at around 1.3%, weaker than RBC Economics’ 1.8% base case forecast⁹. RBC said the data point to tepid Canadian growth late in the quarter⁹.

What to watch

The central bank’s next decision will show which reading prevails, a pause to assess the weaker labor market or another preemptive increase to keep inflation in check^4,8. The layoff rate has also come into focus as a gauge of how quickly the labor market is cooling².

Currency traders will watch whether the loonie’s slide extends, since it has tracked shifting expectations for Bank of Canada hikes³. For mortgage borrowers, the falling odds of another hike are the immediate change from the October report⁶. The central bank’s own tone in the weeks before December will be read against the soft labor data^2,8.