New figures tracking employer payrolls suggest that Canada’s labour market may be softening far more than headline numbers indicate, raising concerns that underlying economic conditions are deteriorating and renewing calls for additional interest rate reductions.

In the latest data, the number of workers receiving wages and benefits from employers fell by approximately 58,000 in September. These losses were spread across a wide range of industries, with more than half of the major sectors posting declines. This setback more than erased the modest gains recorded in the previous month, pointing to a steady cooling in payroll activity.

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These payroll results stand in sharp contrast to household-based employment figures, which recently showed an increase in jobs and a drop in the unemployment rate. While those household surveys suggested surprising resilience, many analysts view them as volatile and prone to short-term distortions. The payroll-based data, by comparison, offers a direct read on actual pay issued by employers and is generally treated as a firmer indicator of labour market health.

A closer look at the payroll trend reveals mounting weakness. Growth in employer payrolls has been fading gradually over the past three years, declining from robust annual expansion to nearly flat levels today. This pattern signals that job creation has slowed dramatically, even if surface-level employment reports appear more optimistic.

Sector-by-sector declines underscore the broad nature of the downturn. Industries sensitive to interest rates, such as construction and real estate, saw notable pullbacks—an indication that borrowing costs may still be weighing heavily on demand. Sectors influenced by currency movements, including manufacturing and transportation, also recorded decreases, reflecting competitive pressures and weakening output. Only a few areas, such as health-related and recreational services, recorded mild gains.

Even with a slight rise in job vacancies, the number of unemployed individuals per available position remains elevated, reinforcing the view that labour market slack is widening. Some analysts argue that if payroll trends were reflected in household-survey calculations, the national unemployment rate would appear significantly higher.

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This growing imbalance between job seekers and available work has intensified calls for additional interest rate cuts. Analysts note that during previous periods with comparable slack, policy rates were far lower than they are today. Many expect labour conditions to remain subdued in the near term, with a more durable recovery not anticipated until clearer trade conditions and the cumulative effects of past rate reductions filter through the economy.