Canada's economy cools in Q3, November job surge keeps rate hikes in sight

The Canadian economy slowed in the third quarter after a hot first half of the year as exports tumbled, but an acceleration in hiring and wage growth last month was seen giving the central bank reason to raise interest rates again before long. The economy added 79,500 jobs in November, Statistics Canada said on Friday, blowing past expectations and sending the unemployment rate to 5.9 percent, its lowest since February 2008 even as labor market participation was unchanged.
"This was another barn-burner of a jobs report," said Sal Guatieri, senior economist at BMO Capital Markets. "For the Bank of Canada, this certainly means the economy is doing quite well and pumping out a lot of jobs," which could make the central bank's statement after its meeting next week more upbeat, Guatieri said. The data drove the Canadian dollar to its biggest gain in nearly three months against the greenback. The stock market was steady.
While the central bank is largely expected to hold rates steady on December 6 after raising twice this year, odds of a hike as soon as January rose to 61.5 percent. It also bolstered minority bets of a third increase next week to 27.6 percent from 20.2 percent ahead of the release.
"It certainly firms the idea that there are more near-term hikes than previously anticipated," said Michael Dolega, senior economist at Toronto-Dominion Bank. Average hourly wages continued to accelerate, up an annual 2.7 percent in the best performance since April 2016. The Bank of Canada has pointed to wages as one factor it is looking at to decide future policy. The Canadian labor market has been on a tear for over a year and has added 390,000 jobs since last November, driven by full-time employment. Last month's gains were fueled by hiring in the manufacturing and trade sectors.
The jobs figures garnered more attention than the separate gross domestic product report, which showed the economy grew at an annualized 1.7 percent in the third quarter. The economy had been expected to slow after growth in the first half of the year made Canada a Group of Seven leader. Exports were the main drag as shipments of vehicles and parts fell. The housing sector also weighed on growth, partly reflecting slower resale activity.