In a development that has left economists perplexed, a third consecutive month of robust Canadian employment data has dramatically shifted the outlook for interest rates, with markets now speculating that the next move from the Bank of Canada could be a hike in 2026.
November Jobs Data Defies Expectations
Statistics Canada reported on Friday that the national economy added a stunning 54,000 jobs in November, completely confounding analyst forecasts which had predicted a loss of 2,500 positions. The unemployment rate fell sharply to 6.5 per cent, down from 6.9 per cent in October and well below the expected rise to seven per cent.
This marks the third straight month of better-than-expected employment figures, effectively reversing a troubling labour market trend that had persisted for years. A key driver of the decline in the jobless rate was a drop in the number of people actively searching for work.
Economists React: A 'Head-Scratcher' with Major Implications
The report's strength, particularly when viewed alongside recent stubbornly high inflation readings, has led economists to a stark consensus: the prospect of a near-term interest rate cut from the Bank of Canada is now off the table.
Andrew Grantham of CIBC Capital Markets called the release "a real head-scratcher," noting the perplexing mix of signals. While the headline number was strong, the gains were concentrated in part-time work, which surged by 63,000, while full-time employment actually declined by 9,400.
Dave Sloan, a senior economist at Continuum Economics/4Cast Ltd., pointed out that the three-month streak of gains has wiped out significant job losses from July and August. He suggested the data adds to hopes that the economy is proving more resilient than anticipated, potentially indicating that the unemployment rate peaked at 7.1 per cent in August. However, he cautioned that this conclusion remains tentative.
The Road Ahead: From Rate Cuts to Potential Hikes
The immediate and most significant takeaway for financial markets is the death knell for 2025 rate cuts. The combined force of a strengthening labour market and persistent inflation pressures has quashed any lingering expectations for monetary easing in the near future.
The new debate is now centered on when the Bank of Canada might need to consider tightening policy again. Sloan's analysis suggests that while the current easing cycle may have bottomed out, the central bank would need to see continued strong data into early 2026 before seriously contemplating a rate hike.
The report presents a complex picture for policymakers. The headline job growth and falling unemployment suggest economic momentum, but the composition—reliant on part-time roles—and other mixed signals mean the Bank of Canada is likely to maintain a cautious, data-dependent stance. For now, the message to Canadians and investors is clear: the era of rate cuts is over, and the countdown to a potential hike has unofficially begun.
