Friday’s report showed an economy still creating jobs with room to churn out more. Bank of Canada policymakers cited the weakening in the labour market to ramp up the pace of reducing borrowing costs last month. Some market participants see a possibility of another 50 bps overnight policy rate cut at this year’s final decision on Dec. 11. Swap markets put the odds of a 50-basis point cut next month at about a coin flip.

The labour force participation rate fell a tick—the fourth monthly decline since May—to 64.8%, reaching its lowest level since December 1997 (except for the COVID-19 pandemic period). The decrease in labour force participation over the past year primarily reflects a drop in students looking for work.

The employment rate—the proportion of the population aged 15 and older who are employed—decreased by 0.1 percentage points to 60.6% in October, the sixth consecutive monthly decline. It fell 1.3 percentage points on a year-over-year basis and has been on a downward trend from a recent peak of 62.4% in February 2023. The longer-term trend of rising retirements from an aging workforce has also reduced the employment rate.

The number of employees in the private sector was little changed in October, following two months of growth totalling 99,000 (+0.7%) in August and September. Public sector employment and self-employment were both virtually unchanged in October.

In October, employment in business, building and other support services rose by 29,000 (+4.2%), the first increase since May. On a year-over-year basis, employment in this industry—which includes establishments primarily engaged in activities that support the day-to-day operations of organizations, from waste management to administrative services—was up by 33,000 (+4.8%).

Employment in finance, insurance, real estate, rental and leasing fell by 13,000 (-0.9%) in October. Despite the decline in the month, employment in the industry was up by 50,000 (+3.6%) on a year-over-year basis, outpacing employment growth across all industries (+1.5%).

Public administration employment fell by 8,700 (-0.7%) in October, following two consecutive months of little change in August and September. Employment in public administration had previously followed a strong upward trend from August 2023 to July 2024, rising by 65,000 (+5.5%) over the period.

Employment in Alberta rose by 13,000 (+0.5%) in October, the second increase in three months. At 7.3%, the unemployment rate was little changed in the month, but was up 1.4 percentage points compared with October 2023. Over the same period, the employment rate in Alberta fell 1.6 percentage points to 63.7%, as employment growth (+2.3%; +58,000) was slower than growth in the population aged 15 and older in the Labour Force Survey (LFS) (+4.8%).

Employment also increased in New Brunswick in October (+3,300; +0.8%) and the unemployment rate was little changed at 6.8%. On a year-over-year basis, employment in the province was up 3.1% (+12,000).

There were fewer employed people in Prince Edward Island in October (-1,100; -1.2%). The decline in employment, coupled with an increase in the number of Prince Edward Islanders in search of work, pushed the unemployment rate in the province up 2.9 percentage points to 10.0%.

Both Quebec and Ontario saw little overall employment change in October. The unemployment rate held steady in October in Quebec (at 5.7%) and in Ontario (at 6.8%).

One more jobs report is scheduled before the Dec. 11 rate decision.  Canada’s October labour survey details aren’t as downbeat as we expected. However, the downside surprise in total hiring will give the BoC cover to continue cutting rates as it rushes to return to a neutral policy stance

All signals bode well for a sharp increase in housing activity by the spring, if not markedly sooner.

We expect the policy rate to fall to 2.50% by the spring of next year. This morning’s 50 bp cut reinforces speculation of another 50 bp move in December. However, the Bank will likely need to see continued weak economic data and low inflation to prompt another big move. Wage growth remains stubbornly strong, and there might be some lingering concern about reigniting the housing market, especially with mortgage insurance rules poised to change on December 15.

However, the Bank pointed out that lower rates will trigger a rebound in the housing market. According to the Monetary Policy Report (MPR), “Resales and renovations are anticipated to recover as interest rates decline. Renovations should also be supported by a projected rise in house prices. Recent changes to government mortgage insurance rules are expected to bolster housing demand. Although population growth should ease, the level of demand is expected to remain robust and support new construction. Lower interest rates may also facilitate some increase in housing supply by easing financing costs. However, constraints on the amount of land available for new homes, zoning restrictions and a lack of skilled labour are expected to limit the pace of construction, particularly over the near term. As a result, growth in housing demand is expected to outpace increases in supply. Unlike other sectors of the economy that are experiencing excess supply, the housing market is projected to remain tight. House prices are expected to rise, but the pace of increases will likely be restrained because some home buyers will face affordability challenges”.

Effective tomorrow, the prime rate will fall to 5.95%, lowering floating-rate mortgage rates. According to Mortgage Logic News, the lowest nationally advertised 5-year fixed rate is down 10 bps this week to 4.09%.

In its policy statement, the Governing Council reduced its forecast for growth in the second half of this year to 1.75%. Third-quarter GDP growth was revised to 1.5% from 2.8% in the July MPR. Inflation has improved faster than expected, ending the year at 2.1%, with core inflation at 2.3% and falling further in 2025.

Today’s action is great news for the Canadian economy and housing activity. Market participants are now expecting home resales to pick up sharply in the first quarter of next year. The coming spring housing season should be robust, boosting sales and prices.

Home sales recorded over Canadian MLS® Systems climbed 1.9% month-over-month in September 2024, reaching their highest level since July 2023. The Greater Toronto Area, Hamilton-Burlington, Montreal and Quebec City, Greater Vancouver and Victoria led the national increase.

“Sales gains are now three for three in the months following interest rate cuts, which is a trend even though the increases weren’t headline-grabbing,” said Shaun Cathcart, CREA’s Senior Economist. “That said, with the pace of rate cuts now expected to be much faster than previously thought, it’s possible some buyers may choose to hold off on a purchase for now. This could further boost the rebound expected in 2025 at the expense of the last few months of this year”.

New listings posted a 4.9% month-over-month rise in September, as sellers listed properties in more significant than normal numbers for the first weeks of the month. Gains were broad-based, with most of the country’s biggest markets topping the list.

At the end of September 2024, 185,427 properties were listed for sale on all Canadian MLS® Systems, up 16.8% from a year earlier but still below historical averages of around 200,000 listings for that time of the year.

With sales rising by less than new listings in September, the national sales-to-new listings ratio eased to 51.3%, down from 52.8% in August. This measure could be reversed if all those listings increase sales in October. The long-term average for the national sales-to-new listings ratio is 55%, with a sales-to-new listings ratio between 45% and 65%, generally consistent with balanced housing market conditions.

“The beginning of September saw a burst of new supply for buyers to choose from before things generally quiet down for the winter,” said James Mabey, CREA Chair. “While some buyers may choose to take advantage, others may be inclined to wait as the bulk of future rate cuts from the Bank of Canada are now expected to show up in a matter of months as opposed to years.”

At the end of September 2024, there were 4.1 months of inventory nationally, down from 4.2 months at the end of August. The long-term average is 5.1 months of inventory, with a seller’s market below 3.6 months and a buyer’s market above 6.5 months.

The National Composite MLS® Home Price Index (HPI) inched up 0.1% from August to September; however, small ups and downs aside, the bigger picture is that prices at the national level have remained mostly flat since the beginning of the year.

The non-seasonally adjusted National Composite MLS® HPI stood 3.3% below September 2023, a smaller decline than the 3.9% declines recorded in July and August. Given the price weakness seen towards the end of 2023, negative year-over-year comparisons will likely continue to shrink.

Potential homebuyers remain on the sidelines awaiting further rate cuts by the Bank of Canada. As long as home prices are flat, purchasers have no compelling reason to take immediate action. This should change gradually. With new supply on the market, sales should continue to rise this month.

With weak economic activity expected in Q3 and Q4, BoC rate reductions will continue well into 2025. Given standard seasonal housing activity patterns, we will likely see strong home sales in the spring. Governor Macklem has commented that more significant rate cuts would be forthcoming if the economy weakens too aggressively and inflation falls below the 2% target. This would be welcome news for housing. We expect the overnight policy rate to fall to 2.5% before the end of next year. It is now at 4.25%–well above the current inflation rate.

The September CPI data, released this morning, showed a marked decline in headline inflation to a mere 1.6% y/y. The decline was due to the September downdraft in gasoline prices, reflecting the weakening global economy. However, core inflation measures were unchanged from August to September, and gas prices have risen so far in October owing to stepped-up Middle East tensions. Nevertheless, excluding shelter costs–including mortgage interest payments, rent and renovation costs–inflation last month was 1.8%–below the Bank of Canada’s 1%-to-3% target band. This, combined with the slowdown in GDP growth, may trigger a 50 basis point rate cut at the October 23 Governing Council meeting.

Housing activity will continue to edge upward gradually through the remainder of 2024, accelerating as we approach the seasonally strong spring housing market.

Although the rate at which prices increase has slowed, price levels remain elevated. Compared with September 2021, the CPI rose 12.7% in September. Canadians continue to feel the impact of higher price levels for day-to-day basics such as rent (+21.0%) and food purchased from stores (+20.7%), which increased during that same 3-year period.

The CPI fell 0.4% in September after a 0.2% decline in August. Lower gasoline prices led to both the monthly and yearly movement in September. On a seasonally adjusted monthly basis, the CPI remained unchanged at 0.0%.

According to Bloomberg News, “After the release, traders in overnight swaps upped their bets that the Bank of Canada will opt for a larger rate cut at next week’s decision, putting the odds of a half-percentage-point reduction at about 75%. Previously, the odds were around 50%.” The Canadian dollar weakened further on the news relative to the greenback. The loonie has fallen for ten days, the longest streak since 2017. Canadian debt rallied across the yield curve, outperforming US Treasuries and pushing the two-year Canada benchmark yield to 3.03% and the 5-year bond yield to 2.92% by mid-day.

Tuesday’s data marks the first time since February 2021 that inflation is below the central bank’s 2% target and is the ninth straight month of headline rates running within its target range.

With inflationary pressures continuing to ebb and policymakers focusing more on preserving economic growth, the data give the central bank options to reduce rates quicker after cutting borrowing costs at 25 basis points at the past three meetings.

While the September employment data were stronger than expected, Q3 GDP growth is slated to be roughly 1.8%, well below the Bank of Canada’s 2.8% forecast. Today’s inflation report is the last important data point before the Bank meets again on October 23. Late last month, BoC Governor Tiff Macklem warned that growth may be below policymakers’ previous expectations in Q3.

Excluding shelter costs, the consumer price index rose 0.4% from a year ago compared to 0.5% in August. Mortgage interest costs and rent remained the most significant contributors to the annual inflation rate change. However, rent prices increased at a slower pace in September, rising 8.2% versus 8.9% in August. Tuition fees, priced annually in September, also grew slower, increasing 1.8% compared with 2.5% last year.

Regionally, inflation is now at or below 2% in every province, with prices rising slower in September than in August in all ten provinces. The central bank will release new economic forecasts in the Monetary Policy Report next week. Macklem has said,  “decisive monetary policy action and the unblocking of supply chains” means “uncertainty about costs and inflation are much lower today than two years ago”.

Home sales recorded over Canadian MLS® Systems increased by 1.3% month-over-month in August 2024, reaching their highest level since January and their second highest in over a year.

“Despite some fledgling signs of life to kick off the long-awaited monetary policy easing cycle, Canadian housing market activity still looks to be stuck in the same holding pattern it’s been in all year,” said Shaun Cathcart, CREA’s Senior Economist. “That said, with ever more friendly interest rates now all but guaranteed later this year and into 2025, it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well-behaved in most of the country.”

At the end of August 2024, about 177,450 properties were listed for sale on all Canadian MLS® Systems, up 18.8% from a year earlier but still more than 10% below historical averages of around 200,000 listings for this time of the year.

New listings posted a slight 0.9% month-over-month increase in July. A much-needed boost in new supply in Calgary led to the national increase in new supply in Calgary.

With new listings up slightly and sales down slightly in July, the national sales-to-new listings ratio fell to 52.7% compared to 53.5% in June. The long-term average for the national sales-to-new listings ratio is 55%, with a ratio between 45% and 65% generally consistent with balanced housing market conditions.

At the end of July, there were 4.2 months of inventory nationwide, unchanged from the end of June. The long-term average is about five months of inventory.

“While it wasn’t apparent in the July housing data from across Canada, the stage is increasingly being set for the return of a more active housing market,” said James Mabey, Chair of CREA. “At this point, many markets have a healthier amount of choice for buyers than has been the case in recent years, but the days of the slower and more relaxed house hunting experience may be somewhat numbered.

At the end of August 2024, there were 4.1 months of inventory on a national basis, down from 4.2 months at the end of July. Continuing the theme of the market being in a holding pattern, this measure of market balance has been range-bound between 3.8 months and 4.2 months since last October. The long-term average is about five months of inventory.

The National Composite MLS® Home Price Index (HPI) increased by 0.2% from June to July. While a slight increase, it was slightly larger than the June increase, making it just the second and the most significant gain in the last year.  While prices were up slightly at the national level, they were held back by reduced activity in the most extensive and expensive British Columbia and Ontario markets. Regionally, prices are rising in most markets.

The non-seasonally adjusted National Composite MLS® HPI stood 3.9% below July 2023. This primarily reflects how prices took off last April, May, June, and July—something that was not repeated over that same period in 2024. Year-over-year comparisons will likely improve from this point on.

The actual (not seasonally adjusted) national average home price was $667,317 in July 2024, almost unchanged (-0.2%) from July 2023.

The National Composite MLS® Home Price Index (HPI) was unchanged from July to August, following two small increases in June and July. That said, the bigger picture is that prices at the national level have been flat since the beginning of the year, posing no reason for potential buyers to rush to market.

The non-seasonally adjusted National Composite MLS® HPI stood 3.9% below August 2023. This mostly reflects price gains last spring and summer, followed by declines in the second half of last year. As such, it’s mostly likely that year-over-year comparisons will improve from this point on.

Potential homebuyers remain on the sidelines awaiting further rate cuts by the Bank of Canada. As long as home prices are flat, purchasers have no compelling reason to take immediate action. This should change gradually. With new supply on the market, sales should continue to rise this month.

With weak labour markets and falling economic growth, the Bank of Canada will continue to cut interest rates by at least 25 bps on each decision date. Governor Macklem has commented that more significant rate cuts would be forthcoming if the economy weakens too aggressively and inflation falls below the 2% target. This would be welcome news for housing. We expect the overnight policy rate to fall to 2.5% before the end of next year. It is now at 4.25%–well above the current inflation rate.

In separate news, the Trudeau government has taken action to implement some of the budget measures to improve housing affordability. The federal government will make 30-year mortgages available to all first-time buyers and to buyers of newly built homes.Canada cracked down on lengthy mortgage amortizations during the 2008 global financial crisis. Until this year, buyers who required government-backed default insurance on their mortgages were limited to 25-year amortizations.

Trudeau and  Finance Minister Freeland stepped toward loosening that rule in April, allowing 30-year amortizations on insured mortgages only for first-time buyers purchasing newly built homes.

The government will also begin allowing mortgage default insurance on homes worth up to $1.5 million, an increase from the current cap of $1 million, effective December 15. That means buyers can bid on more expensive homes even if they have less than a 20% down payment — as long as they purchase insurance.

Today’s announcement will significantly expand the pool of buyers who can access 30-year loans, which lowers monthly payments. According to Freeland, insured first-time buyers represent roughly 20% of the market in Canada, while new builds make up about 4%.

Full-time jobs declined by 44,000 while part-time work increased by 66,000. This was the fourth straight month of very modest employment gains.

The Bank of Canada expressed mounting concern about the rising output gap–the difference between economic growth at full employment and the current underemployment growth of less than 2%.

The number of private sector employees rose by 38,000 (+0.3%) in August, mainly offsetting a similar-sized decrease in the previous month (-42,000; -0.3%). The increase in private-sector employment in August was the first since April. Public sector employment and self-employment both changed little in August.

Year-over-year employment growth was concentrated among core-aged (aged 25 to 54) men and women as youth unemployment surged. Young immigrants have been hardest hit.

In August 2024, 1.5 million people were unemployed, an increase of 60,000 (+4.3%) from July and 272,000 (+22.9%) from August 2023.

Among those unemployed in July, 16.7% had transitioned to employment in August (not seasonally adjusted). This was lower than the corresponding proportion in August 2023 (23.2%), indicating that unemployed people may face more difficulties finding work.

In August, the unemployment rate rose for men aged 25 to 54 years old (+0.4 percentage points to 5.7%) and for men aged 55 and older (+0.4 percentage points to 5.5%), while it was little changed for other major demographic groups.

Although the unemployment rate was up across all age groups year-over-year in August, the increase was most significant for youth (+3.2 percentage points to 14.5% in August). The rate was up for young men (+3.8 percentage points to 16.3%) and young women (+2.6 percentage points to 12.6%).

For core-aged people, the jobless rate was up 0.9 percentage points to 5.4% on a year-over-year basis in August. Increases for this age group were observed across all levels of educational attainment. On a year-over-year basis, the unemployment rate was up in August for core-aged people with a high school diploma or less (+1.5 percentage points to 8.2%), for those with some post-secondary education below a bachelor’s degree (+0.7 percentage points to 5.5%) as well as for those with a bachelor’s degree or a higher level of education (+0.9 percentage points to 6.2%) (not seasonally adjusted).

In August, employment rose by 27,000 (+1.7%) in educational services, the first increase since January. There were 75,000 (+5.1%) more people employed in this sector than 12 months earlier.

In August, health care and social assistance employment increased by 25,000 (+0.9%). In the 12 months to August, employment gains in health care and social assistance (+157,000; +5.8%) were the largest of any sector and accounted for nearly half (49.6%) of total net employment growth.

Year-over-year employment growth in health care and social assistance was recorded in the private sector (+94,000; +8.6%) and the public sector (+77,000; +6.1%). Self-employment in health care and social assistance changed little over the period (not seasonally adjusted).

The youth unemployment rate continued to surge in August, rising to 14.5%, the highest since 2012 outside the pandemic.

The data point to deteriorating labour demand in an economy that consistently fails to add jobs at the pace of population growth. And while there’s little evidence of widespread layoffs, the continued weakness is likely to add to disinflationary pressures, allowing the Bank of Canada to keep lowering borrowing costs at a gradual pace.

Still, the unexpected jump in the jobless rate will further fuel debate about deeper interest rate cuts. Traders in overnight index swaps boosted bets that the Bank of Canada would cut by 50 basis points at its Oct. 23 meeting. They now put those odds at around 40%, compared with about 30% the day before.

Policymakers led by Governor Tiff Macklem reduced the policy rate by 25 basis points for a third straight time on Wednesday. Officials say they’re increasingly focused on downside worries and guard against the risk that growth slows too much. Speaking to reporters, Macklem said the Governing council had discussed a scenario wherein the economy and inflation were weak enough to require a more significant than a quarter-point reduction in borrowing costs. Policymakers also reiterated they’re concerned about undershooting their 2% inflation target. “We need to increasingly guard against the risk that the economy is too weak and inflation falls too much,” the governor said.

This is the first of two job reports before the October rate decision. A Bloomberg survey found that most economists expect the bank to cut by 25 basis points at the next four meetings, bringing the policy rate to 3% by mid-2025.

The Canadian data were released simultaneously with the highly anticipated nonfarm payrolls in the US, which rose by 142,000 following downward revisions to the prior two months. Economists surveyed by Bloomberg were expecting an increase of 165,000. Treasury yields fell as markets weighed whether the weaker job gains would prompt a larger than quarter percentage point cut from the Federal Reserve when they meet again on September 18.