A second jobs miss should settle the BoC’s October debate
September’s Labour Force Survey landed well on the soft side of expectations, and in line with the direction we flagged in our preview.
Employment fell 68k against consensus for a 10k rebound, following August’s 42k decline. That leaves a 110k drop over two months, reversing well over half of the 181k added across May, June and July. The data reinforces our longstanding call for the BoC to remain on hold indefinitely, propelling USDCAD to 1.43 as traders trim rate rise expectations.
Looking at the finer details of the release, September’s employment decline appears broad-based. Losses were split between full-time (-35k) and part-time (-33k) work, concentrated among youth (-48k) and core-aged women (-28k).
Broken down by sectors, employment fell in education (-35k), health care (-23k) and manufacturing (-13k), the last reversing August’s surprise gain. Meanwhile, the unemployment rate rose just 0.1pp to 6.5%, matching consensus, and even this flatters the picture. The headline rate was held down by a shrinking labour force, with participation falling 0.2pp to 64.8%, the lowest since December 1997 outside the pandemic. The job-finding rate slipped to 30.6%, well below last year’s 32.8%, while the layoff rate was little changed at 0.7%.
In short, we see a deteriorating labour market. Granted, firms are not yet shedding staff en masse. But nor are they hiring, exactly the behaviour Governor Macklem warned of in Halifax when he suggested the latest tariffs could cut Q4 growth below 1%.
We doubt the one sign of strength in today’s release, a pickup in hourly wage growth, which rose to 2.3% from August’s 2.0%, is likely to hold much weight in the face of overwhelming evidence that the labour market is otherwise softening.
We have argued since the BoC’s September meeting that both traders and rate setters were overly hawkish in their outlook, instead expecting policy to remain on hold indefinitely. Today’s data reinforces that call, with September CPI on October 19th the final test ahead of this month’s decision, though we doubt it will show the kind of broadening price pressures the BoC is worrying over. We continue to expect a hold on October 28th, with the policy rate at 2.25% into 2027. For the loonie, we are already seeing a front-end repricing post-release, pushing USDCAD back toward 1.43 heading into the weekend.