The Canadian job creation engine topped forecasts in November, firming expectations for another hold at the Bank of Canada’s meeting next week. 25,000 new positions were added in the month, with population growth and still-high participation rates pushing the unemployment rate to 5.8 percent, up from 5.7 percent in October. Consensus estimates had pointed to a 15,000 new hires, with unemployment rising to 5.8 percent.

The finance, insurance, and real estate sectors – the most interest-rate sensitive areas of the Canadian economy – suffered the bulk of the losses, shedding 18,000 jobs in the month, and contributing the most to a 0.7-percent month-over-month drop in total hours worked. Still-solid growth in construction, manufacturing, and the public sector helped tilt the balance in a positive direction, with a total 56,300 positions added.

The average hourly wage for permanent employees – closely watched by monetary policymakers – climbed 5 percent from a year earlier, holding at the pace set in October and down from 5.3 percent in September. This is still considered sufficient to put upward pressure on services sector price measures, but is unlikely to offset other, more powerful disinflationary forces that are gaining strength across the economy.

The Bank of Canada remains on course toward holding benchmark borrowing costs at a 22-year high next week, and will likely deliver a modestly-hawkish message to forestall a premature easing in financial conditions. But with the Canadian economy showing signs of slowing momentum and job creation generally failing to keep pace with population growth, the conditions are in place for an imminent growth contraction – and a dramatic pivot from policymakers in the early new year.

Although we expect the Canadian dollar to continue its recent run of outperformance as broader selling hits the greenback, a darker reality should set in by early 2024, capping its gains. Canadian dollar bulls will eventually have their Wile E. Coyote moment.