Market News

Canada’s unemployment rate jumped to 6.6 per cent in August, Statistics Canada said on Friday, more than economists expected as the labour market added a net 22,100 jobs largely in part-time work.

The unemployment rate is now at its the highest level since May 2017, outside of the COVID-19 pandemic, as job growth has failed to keep up with a surge in Canada's population. Statistics Canada noted that the unemployment rate has "generally trended up" since April 2023, rising 1.5 percentage points in that time.

Economists polled by Reuters had expected the economy to add 25,000 jobs, and the August unemployment rate to rise to 6.5 per cent.

"The main point is that despite an okay headline, the overall message from this report is that slack is building, very much keeping the Bank of Canada on an easing path, with a growing chance of a more forceful pace to those cuts," BMO chief economist Douglas Porter wrote in a research note on Friday.

"There is still a lot of data before the October (Bank of Canada) meeting, but the odds of a 50 basis point rate cut are building."

The Bank of Canada cut its benchmark interest rate for the third consecutive time this week, leaving the door open to further, and potentially deeper, cuts amid economic weakness. Traders in overnight index swaps boosted bets that the Bank of Canada would need to cut by 50 basis points at its next meeting in October, according to Bloomberg data. They now see about a 40 per cent chance of that happening, compared with less than 30 per cent the day before.

"The sharper than anticipated rise in unemployment during August, combined with evidence that the breadth of joblessness is increasing, suggests that the unemployment rate could peak higher than we were previously anticipating," CIBC economist Andrew Grantham wrote in a research note. While the bank is sticking to its previous forecast of consecutive 25 basis point cuts in October and December, he noted that "the closer we get to 7 per cent, the more pressure the Bank of Canada will feel to accelerate the pace of interest rate cuts."

Desjardins managing director and head of macro strategy Royce Mendes said in a research note that the employment data suggest that the economy continued to stagnate in the third quarter.

"The Bank of Canada had predicted a sharp rebound for the economy in the third quarter, but so far that projection isn’t materializing," Mendes wrote.

"We continue to see a significant chance that central bankers will need to lower the policy rate in October by 50 basis points to avoid falling behind the curve. That said, with much data still to be released between now and then, it’s too early to change our official call."

The increase in jobs in August was driven by part-time work, which offset a decline in full-time employment. Statistics Canada said a net 65,700 part-time jobs were added in August, while full-time jobs declined by a net 43,600. Average hourly wages, closely watched by the Bank of Canada, increased 5 per cent year-over-year in August, after increasing 5.2 per cent in July.

Statistics Canada noted that this was a difficult summer for students seeking employment. On average, the unemployment rate for returning students between the ages of 15 and 24 was 16.7 per cent this summer, up from 12.9 per cent. The data agency said the unemployment rate between May and August for students was the highest since 2012, excluding the COVID-19 pandemic.

Among those who were unemployed in July, 16.7 per cent found work in August, lower than last year, when 23.2 per cent found employment. Statistics Canada noted that this is "an indication that unemployed people may be facing greater difficulties finding work."

With files from Bloomberg.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.