Forget A December BoC Rate Cut: October Labour Force Survey Much Stronger Than Expected

Today’s Labour Force Survey for October showed a stronger-than-expected net employment gain of 66,600, on the heels of September’s upside surprise. Cumulative gains in September and October (+127,000; +0.6%) have offset cumulative declines observed in July and August (-106,000; -0.5%).

Even more unexpected was the dip in the jobless rate from 7.1% in August and September to 6.9% last month. The Bank of Canada had already suggested that the overnight policy rate, at 2.25%, was low enough to spur growth and mute inflation.  

The employment rate rose to 60.8%. The employment rate in October was unchanged year over year but remained below the recent high of 61.1% recorded in January and February 2025.

There were more people working in wholesale and retail trade (+41,000; +1.4%), transportation and warehousing (+30,000; +2.8%), information, culture, and recreation (+25,000; +3.0%), and utilities (+7,600; +4.6%). On the other hand, employment in construction declined by 15,000 (-0.9%).

Employment increased in Ontario (+55,000; +0.7%) and in Newfoundland and Labrador (+4,400; +1.8%), while it declined in Nova Scotia (-4,400; -0.8%) and Manitoba (-4,000; -0.5%).

Average hourly wages among employees increased 3.5% (+$1.27 to $37.06) on a year-over-year basis in October, following growth of 3.3% in September (not seasonally adjusted).

The employment increase in October was driven by part-time work (+85,000; +2.3%). This follows an increase in full-time work in September (+106,000; +0.6%). On a year-over-year basis, employment was up in both full-time work (+199,000; +1.2%) and part-time work (+101,000; +2.7%).

Private sector employment rose by 73,000 (+0.5%) in October, the first increase since June. There was little change in the number of public sector employees or self-employed workers in October.

Despite the employment increase in October, total actual hours edged down (-0.2%) in the month as an elevated number of employees lost work hours due to labour disputes occurring during the Labour Force Survey reference week (October 12 to 18).

An estimated 87,000 employees across the provinces lost work hours due to labour disputes during this period (not seasonally adjusted). This was particularly notable in Alberta, where a teachers’ strike and a subsequent lock-out led to the closure of most elementary and secondary schools in the province.

On a year-over-year basis, total actual hours were up 0.7% in October.

Even with the latest jobs report, the Canadian economy remains vulnerable to the unsettling US attitude towards the free trade agreement, which is slated to be renegotiated by July 2026. But Governor Tiff Macklem has said that fiscal stimulus would be more effective than monetary stimulus in response to tariff-generated weakness. Judging from this week’s federal budget 2025 announcements, fiscal stimulus will take considerable time to impact the overall economy. 

The unemployment rate fell 0.2 percentage points to 6.9% in October. Prior to this decline, the unemployment rate had reached 7.1% in August and September, the highest level since May 2016 (excluding 2020 and 2021 during the COVID-19 pandemic).

Nearly one in five (19.8%) unemployed people in September had found work in October. This proportion (referred to as the job finding rate) was up from 12 months earlier (16.5%) but was lower than the average for the same months from 2017 to 2019 (24.6%) (not seasonally adjusted).

Bottom Line

The Bank of Canada has made it clear that it will focus on inflation and will leave closing the output gap to fiscal policy. By early next year, it will be clear to the Bank of Canada that fiscal stimulus in the form of significant capital spending projects is just too slow. I expect the Bank of Canada to take the overnight rate down to 2.0% in early 2026.