Canadian Employment Preview: Reasons why Canada's employment rise is limited

• Canada’s employment is expected to increase by 10 thousand new jobs added in November.
• The unemployment rate is expected to remain stagnant at 5.8%, the lowest rate since February 2008.
• A further rise in employment is limited by steeply falling oil prices that reduce production and aggregate demand for labor.

Canada’s unemployment rate is expected to remain at 5.8% in November, unchanged from October and the lowest level since February 2008 while the number of new jobs created in November is set to rise 10.0K in November, Statistics Canada is scheduled to report on Friday, December 7 at 13:30 GMT.

While the unemployment rate is at the lowest level since 2008 matching the record low from 4-decades ago, the prospects for the further increase is limited. A further rise in Canada’s employment is limited as a commodity-dependent economy is facing a 22% drop in oil prices in November and production curtailments will see growth lower with possible layoffs affecting the labor market picture.

In terms of GDP growth, the oil price drop is likely to weigh on Canada's terms of trade and cause some of the production capacity to shut down as documented by recent announcements of production curtails. This is likely to lower the growth outlook for both final quarter of 2018 and the first quarter of 2019. Lower growth will than generate less demand for work and given this perspective, Canada’s labor market might be somewhere near the peak. 

The economic slowdown and lower oil prices were also factored in the Bank of Canada rate decision on Wednesday, December 5 with the Bank saying: “Benchmarks for western Canadian oil – both heavy and, more recently, light – have been pulled down even further by transportation constraints and a buildup of inventories. In light of these developments and associated cutbacks in production, activity in Canada’s energy sector will likely be materially weaker than expected.”

As Canada’s labor market report is synchronized with the one from the US Labor Department, the US non-farm payroll report is likely to steal the show leaving Canadian employment report playing a second division game. With the USD/CAD at the lowest level since July 2017, only a remarkable Canadian employment in combination with US NFP disappointing can support Loonie.