The September jobs report just changed the rate conversation
Canada’s labour market lost 68,300 jobs in September, adding to an already discouraging August and pushing the national unemployment rate to 6.5%.
The Statistics Canada Labour Force Survey, released Friday, has produced near-unanimous agreement among five Bay Street economists: the Bank of Canada (BoC) is expected to hold its policy rate steady at its October 28 meeting, extending what most major institutions have long forecast as a rate hold through 2026 for Canadian mortgage brokers.
Two months of losses set the scene
Charles St-Arnaud, chief economist at Servus Credit Union in Edmonton, was candid about the bind facing Governing Council: “This adds to the BoC’s dilemma. On one hand, the economic outlook remains uncertain, with a weak labour market and a likely slowdown in growth in coming months due to the intensification of the trade war with the US. On the other hand, high fuel prices risk fueling broader inflationary pressures. As the BoC balances these, we believe it will opt for patience. As a result, we think the BoC will keep its policy rate unchanged for the rest of the year, unless there are signs in the CPI data of a broadening of inflation.”
Claire Fan, senior economist at the Royal Bank of Canada (RBC) in Toronto, urged caution in reading too deeply into the headline. “The monthly employment counts are notoriously volatile, and there are reasons not to read too much into the softer reading too quickly,” she wrote.
Fan noted that 70% of September’s decline, or 48,000 positions, came from workers aged 15 to 24, a group that “typically sees seasonal headwinds around this time of year after the school year starts.”
The unemployment rate, she added, “remained 0.6 percentage points below a year ago.”
Looking ahead, Fan said she expects the labour market’s earlier gains to hold: “We expect progress made in Canada’s labour market earlier will be largely sustained, and the unemployment rate to broadly edge lower through the end of 2026.”
What the data means for the October 28 BoC decision
Andrew Hencic, director and senior economist at TD Economics in Toronto, was direct on the rate outlook. “The labour market has now taken a breather for two consecutive months,” he wrote. “The top line job losses are disappointing, but the focus should be on the unemployment rate. An uptick in September brings it back to where it was in June.”
On market pricing and the near-term BoC path, Hencic added: “Ultimately, this report is going to pour some more cold water on near-term rate hike expectations for the BoC. Markets are currently pricing 27% odds of a hike in October, and 88% for December, the latter down from being fully priced yesterday. Given this backdrop we expect the BoC to remain data-dependent and stay on hold in October.”
Andrew Grantham, economist at the Canadian Imperial Bank of Commerce (CIBC) in Toronto, offered a more qualified read, separating data noise from structural risk.
“While the weakness in today’s employment data is likely more a reflection of data volatility than the impact of new US tariffs, the softness supports our call that the Bank of Canada will remain patient and keep interest rates on hold for now,” he wrote.
“Hours worked suggest a weak end to Q3 for GDP, and therefore a weak handoff to the fourth quarter as well, and it is possible that the unemployment rate could edge up a little further in the near-term due to job losses in tariff-impacted sectors.”
Dr. Sherry Cooper, chief economist at Dominion Lending Centres in Vancouver, pointed directly to the October 28 meeting. “The Bank of Canada will likely hold off on a rate hike, especially if the inflation data released on October 19 brings no nasty surprises,” she wrote.
On the global rate backdrop, a critical factor for Canadian fixed mortgage rates, Cooper drew a contrast between Canadian and American fiscal positions.
“Interest on federal debt alone absorbs 35.4% of all federal income-tax revenues stateside. A similar calculation for Canada is only 12.9%.”
Her message for Canadian mortgage professionals was plain: “Although Canadian bond yields are more than 100 basis points lower than in the U.S. for good reason, our yields typically move in the same direction as US yields.”
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