OTTAWA — The Bank of Canada’s push to raise interest rates this summer may soon go into hibernation for the winter — and the final shove will likely come with the jobs report Friday.
There is an unusually solid consensus among economists that about 10,000 jobs were added in September.
BMO Capital Markets economist Douglas Porter says that’s not even enough to absorb the rise in the number of people entering Canada’s labour force each month.
Just to keep up with labour market growth, the economy would need to create about 15,000 jobs a month, he said.
As a result, the Statistics Canada monthly jobs report to be released early Friday may show the unemployment rate flat at 8.1 per cent or rising slightly from August.
“Effectively what we are saying is that job growth is clearly following the economy into a slower lane,” said Porter.
“That’s not surprising. We have nice domestic demand growth in the first part of the year, but that’s run its course and now we need something else, like a dramatic jump in the U.S. economy.”
The Bank of Canada’s next decision on interest rates comes on Oct. 19 — more than a week after the jobs report. But between those two dates, there is little on the economic agenda, leaving the jobs report as the last major data point available to the bank.
A soft September would make three straight lacklustre months, suggesting that the strong gains in the first part of the year are likely a thing of the past.
In last month’s report, Statistics Canada noted that job gains in July and August had averaged a mere 13,000, compared to 51,000 a month in the first half of the year.
That coincides with the arc followed by the economy in general, which strong expansion in the last three months of 2009 and first quarter of 2010, then a sharp braking in the second. In July, the last month of data available, it registered the first decline in almost a year.
With inflation stable and the Canadian dollar again pushing towards parity, analysts say the bank will find little justification for a rate increase.
The bank’s policy rate is currently at one per cent, after three quarter-point hikes from an all-time low of 0.25 per cent. The central bank pushed its short-term lending rates as low as possible during the recession.
to stimulate the economy.
The International Monetary Fund reported Wednesday that Canada’s economy will slow from 3.1 per cent growth this year to 2.7 per cent next year, almost all of it due to sluggish conditions in the U.S.
Exports to the United States have slowed in many industries, including autos, auto parts and lumber.
As well, a slowdown in the housing market — caused by higher mortgage rates, tighter lending by banks and falling consumer sentiment — has hurt the construction, appliances and related sectors.
New figures from Statistics Canada on Thursday showed the construction sector remains under pressure.
Contractors took out $5.7 billion in building permits in August, down 9.2 per cent fewer than in July, due to a big decrease in the non-residential sector — mainly factories, offices and other industrial buildings.
In a report Thursday, TD Bank predicted the jobless rate will stay at 8.1 per cent, also judging that another rate hike is not in the cards.
It notes that seasonal factors confused the jobs picture during the summer, with a loss in July and a gain in August — neither likely accurate.
“Now that the volatility within the educational services component has worked its way out of the data, the performance of the labour market should once again reflect underlying economic fundamentals,” senior strategist David Tulk said in the report.
“It is expected that the deceleration in economic activity over the second half of the year will limit the pace of additional job growth.”
Tulk said he expects the Friday report will also show that both hours worked and the growth rate in wages will remain on the soft side.
“From the perspective of the Bank of Canada, subdued wage pressure will reinforce the view that core inflation will remain below the two per cent target which, in turn, will justify a move to the sidelines in October.”
Porter said the markets are now pricing in a less than 10 per cent chance of a rate hike.