Posthaste: These jobs numbers cry out for more Bank of Canada rate cuts, economist says

Canada’s job market could be in worse shape than many think, according to a Statistics Canada survey of business payrolls, leading one economist to say the

Bank of Canada needs to cut interest rates further as a result. The number of people receiving pay and benefits from their employer fell by 58,000 in September, with the losses spread across 11 of the 20 sectors and more than eliminating a gain of about 17,000 in August, according to the Survey of Employment, Payrolls and Hours (SEPH).

That contrasts with the 67,000 positions gained in October, according to the agency’s

Labour Force Survey (LFS), which is based on a poll of households’ employment status, and the

unemployment rate fell to 6.9 per cent from 7.1 per cent. The gain in October followed an increase of 41,000 in September.

“Call it a tale of two employment reports,” David Rosenberg, president of Rosenberg Research & Associates Inc., said in a note. “If you pay attention to the notoriously volatile Canadian household survey, you could be forgiven for thinking that the local economy is in the midst of a surprising boom.”

Other economists have described the LFS as volatile and not wholly reliable on a month-to-month basis. Some prefer to look at the data over a three-month period.

However, Rosenberg thinks the SEPH is more reliable. “Payroll is payroll,” he said in an email. “A survey of households is prone to a wide error term.”

The SEPH presents the labour market in a different light, Katherine Judge, a CIBC Capital Markets economist, said in a note.

“The payroll survey of employment continued to paint a weaker picture of Canada’s labour market relative to the LFS,” she said. “That leaves employment flat versus year-ago levels, relative to the comparable LFS measure that showed a 1.7 per cent year-over-year increase in the last release.”

Since 2022, SEPH growth has been slowly evaporating. Payroll numbers grew 5.5 per cent year over year three years ago, two per cent two years ago and one per cent last year.

“The trend in the series continues to suggest a weak labour market,” Judge said.

Rosenberg described the declines across the various industry sectors as “breathtaking.”

Payrolls fell in interest-rate-sensitive sectors, including construction and real estate, which suggests interest rates remain too high, he said.  Meanwhile, payroll declines in currency-sensitive sectors, such as manufacturing and transportation and warehousing “suggest the dollar is too high.”

Payrolls also declined in professional and scientific services, administrative and support, waste management and remediation services. Health care, social assistance and arts, entertainment and recreation were the only sectors to record increases in September.

Statistics Canada said job vacancies rose slightly, but the number of unemployed people per opening remained at 3.3, which is “still elevated,” Judge said.

Rosenberg said if the SEPH trend was applied to the LFS, Canada’s unemployment rate would be 8.2 per cent, not the current 6.9 per cent.

Either way, he said there remains enough employment slack in the Canadian economy to argue for lower interest rates.

“When we had this much labour market slack back in the summer of 2010, the rate was sitting at 0.75 per cent, so this notion that the (Bank of Canada) is done at 2.25 per cent likely needs a dose of reassessment,” he said.

Looking at the job market for next year, Judge said, “We expect to see signs of a recovery in 2026 on greater trade clarity around the renewal of (the

Canada-United States-Mexico Agreement ) and as past rate cuts work their way through the economy.”

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Today’s Posthaste was written by Gigi Suhanic, with additional reporting from Financial Post staff, Canadian Press and Bloomberg.

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