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Canada: Despite weak labor numbers, another BoC rate hike continues to be likely CIBC

The Canadian employment report released on Friday showed weaker-than-expected numbers, having an unexpected decline in net employment. Analysts at CIBC point outthe weak headline figures could have the lender of Canada questioning its apparent commitment to even higher interest levels however they noted numbers could reboundin the months ahead because of education employment.

Key Quotes:

Summer lulling continued in the Canadian labour market, with a 40K drop in jobs marking the 3rd consecutive monthly decline. However, unlike the last two months, the most recent drop can not be easily brushed aside because of reduced labour supply. Indeed, the participation rate actually edged up in August, and therefore the decline in employment took the jobless rate around 5.4%, from 4.9% in the last month. Yet with the decline in employment partly due to a big drop in education, which frequently sees volatility in summertime, we doubt that today’s weak headline numbers changes the lender of Canada’s commitment towards raising interest levels further.

The decline in jobs during August was focussed on full-time (-77k) and public sector (-28k) positions. By sector, a 28K drop in construction jobs (a sector previously booming) implies that interest hikes are experiencing a direct effect on the labour market. However, the near 50K decline in education employment is more prone to represent difficulties in seasonal adjustments in this sector, and for that reason we should visit a rebound in the months ahead.

The weak headline figures could have the lender of Canada questioning its apparent commitment to even higher interest levels. However, with the large drop in education employment potentially reversing ahead, sufficient reason for yet another labour force survey prior to the Bank’s October meeting, it still seems likely that a minumum of one more rate hike will undoubtedly be waiting for you before a pause sometimes appears.

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