Canada adds jobs on a surge in full-time hiring, rates seen rising

The Canadian economy added jobs in October with a surge in full-time hiring, and the unemployment rate dipped to a 40-year low, underpinning expectations that the Bank of Canada would keep raising interest rates.

Statistics Canada said on Friday that 11,200 jobs were created and the unemployment rate fell to 5.8 percent for the first time since July.

Analysts in a Reuters poll had forecast a gain of 10,000 positions and for the jobless rate to remain at 5.9 percent.

Analysts said the central bank – which has raised interest rates five times in the last 15 months in response to a strengthening economy – would continue to tighten policy.

Doug Porter, chief economist at BMO Capital Markets, said “the underlying story is still one of improvement in the job market,” while predicting the Bank of Canada would keep rates unchanged at its next announcement on Dec 5.

“I do think the Bank continues to press ahead in 2019 and we remain comfortable looking for three rate hikes next year,” said in a phone interview.

The Bank of Canada on Tuesday reiterated that more interest rate hikes would be needed to achieve its inflation target and that now was the ideal time to remove monetary stimulus, given how well the economy was doing.

Market expectations of an interest rate hike on Dec 5, as reflected in the overnight index swaps market, dipped to 28.43 percent from 30.29 percent.

The Canadian dollar pared its gains, touching C$1.3074 to the U.S. dollar, or 76.49 U.S. cents. It later slipped further to C$1.3104, or 76.31 cents.

Although full-time jobs rose by 33,900 compared to a loss of 22,600 part-time positions, the labor participation rate dropped to 65.2 percent, its lowest since October 1998.

The average year-over-year wage growth of permanent employees – a figure closely watched by the Bank of Canada – fell to just 1.9 percent, the lowest since the 1.7 percent recorded in August 2017.

“We are still in an environment where the path is toward higher rates. But nothing here suggests the Bank of Canada is behind the curve,” said Andrew Kelvin, senior rates strategist at TD Securities.

Separately, Statscan said the September trade deficit shrank to C$416 million ($318 million) as imports fell at a faster pace than exports. It said August imports had been almost C$1 billion higher than initially reported due to late arrival of data.