A crucial reading of the Canadian economy could upend predictions at the eleventh hour
Uncertainty around the trajectory of the Canadian economy makes a September rate cut by the Bank of Canada likely, but not yet in the bag.
And the timing of a crucial piece of the puzzle means analysts may be left guessing until the last minute to have any real certainty of whether the BoC will opt for a rate cut on September 17 or hold back for now.
Jobs data released Friday reflects weakness in the economy with 66,000 jobs lost in August, mostly due to fewer part time roles, while unemployment ticked up to 7.1% (a rise of 0.2 percentage points compared to July).
Young Canadians took the brunt of the jobs decline with Statistics Canada reporting a slump of 58,000 jobs for core-aged (25 to 54 years old) men and of 35,000 for core-aged, while there was little change in for those aged 15 to 24 and aged 55 and older.
The data also shows that one in ten workers would prefer to work more hours, although those in financial services are among those least likely to say this.
WP has been checking out what economists at Canada’s biggest banks think the BoC will do this month, given that the latest CPI data will arrive on the eve of the central bank’s interest rate decision meeting.
“The negative job market report increases the odds that the BoC could see fit to cut interest rates further,” says RBC’s Claire Fan. “Another softer inflation print could raise odds for additional easing relative to our current base case that assumes the BoC has already reached the end of the cycle.”
TD’s Leslie Preston notes that the August jobs report is consistent with the Bank of Canada's characterization of "an excess supply of labour" in July's Monetary Policy Report.
“Markets are now putting odds on the next cut coming in September,” adds Preston. “We have long expected two more cuts this year, with the inflation report on September 16th likely to help cement the timing of the next cut.”
“Ouch. Canada’s job market was hit hard in August,” says Scotiabank’s Derek Holt, who believes that it’s now more likely that the BoC will make a cut this month. “With materially fresh evidence, our revised call is a 25bps cut on the 17th followed by another in October and then hold. If they’re going to ease, then it’s totally pointless to do it just once.”
CIBC’s Andrew Grantham is also expecting two rate cuts this side of 2026: “We continue to forecast a September cut and a further reduction in Q4, which should help the labour market stabilise towards year-end and bring a gradual recovery in 2026, assuming no further dramatic changes in US trade policy.”
And BMO’s Doug Porter summarizes as: “All told, this weak report fully reinforces any bias for the BoC to ease somewhat further here, but inflation hasn’t quite given them the all-clear.”
The CPI data is due September 16 with the BoC making its rates decision on September 17.
