Economists at Scotiabank are revising their rate forecast in the wake of weak jobs numbers — and are now calling for a pair of rate cuts before the end of the year.
In a research note, the bank’s economists said the latest labour market data — which showed the loss of 66,000 jobs in August, pushing the total for the past two months to 106,000 — has increased the prospect of the Bank of Canada easing rates later this month.
The bank has shifted its forecast in response.
“With materially fresh evidence, our revised call is a 25 [basis point] cut on the 17th followed by another in October and then hold,” the note said. Its previous forecast was for rates to remain unchanged for now.
The new forecast comes amid growing concern about the labour market. While most of the job losses reported Friday were in part-time positions and among the self-employed, there are signs employment is weaker than the headline data shows.
“The rub lies in the fact that had it not been for another record high seasonal adjustment factor, the decline in employment would have been bigger. Potentially a lot bigger,” Scotia noted.
The shift in its rate forecast is also supported by expectations that inflation will continue to ease, particularly as Canada’s retaliatory tariffs have largely been scrapped, coupled with signs of a slowing U.S. economy.
Until now, Scotia had been expecting resilient U.S. demand to support Canadian export activity.
“That’s less clear now as the U.S. job market stumbles and growth risks mount with the Fed in easing mode,” the note said.
It also said it’s not clear whether the forthcoming federal budget will be stimulative.
“That probably means the [Bank of Canada] can’t afford to wait given lags in policy effects,” it said.
As a result, the bank now believes at least two cuts are likely.
“One cut wouldn’t be worth [Bank of Canada Governor] Macklem getting out of bed to deliver as the effects would be scant and markets would pressure him to keep going. 50 bps back to back and then we’ll see,” the note said.