07:57 AM EDT, 09/30/2024 (MT Newswires) -- It's been clear for some time that the Canadian economy is operating with slack, said TD.

The Bank of Canada certainly reinforced as much in its summer Monetary Policy Report, but perhaps the clearest signal is that Canada's unemployment rate has jumped 1.6 percentage points from its 2023 low, noted the bank.

Last week's economic data simply reinforced this narrative, stated TD. The payrolls report -- which grabs fewer headlines than its timelier Labour Force Survey counterpart but shares a stronger correlation with the gross domestic product for many industries -- showed that payrolls expanded by 0.2% month on month in July. Although this counts as an above-trend gain, it was paired with another sizeable decline in job vacancies, suggesting that the demand for future workers continues to shrink.

Meanwhile, the job vacancy to unemployment ratio -- a closely watched indicator of job market tightness -- dropped yet again, pointing to further loosening, pointed out the bank.

The softening up in the labor market squares with what TS is seeing in the monthly GDP data. Canada's economy managed to post a better-than-expected 0.2% monthly advance in July, but August's preliminary estimate is calling for no growth. For Q3 overall, industry-based GDP performances so far are flagging significant downside risk to the Bank of Canada's "hefty" Q3 2.8% growth projection.

This implies an even larger build-up of slack than policymakers had anticipated and provides some justification for a market that's almost fully built in a 50 basis-point point move from Canada's central bank at the October meeting, added TD. Also helpful from this perspective is the fact that crude oil prices continue to fall, weighed down last week by Saudi Arabia's announcement that regardless of market conditions, they will begin increasing output on Dec. 1 -- doing away with their $100/ barrel unofficial price target.

Lastly, Canada's headline GDP growth has been flattered by robust population gains but, on a per capita basis, the economy is shrinking. Last week's population report confirmed this soft trend extended through Q2. Indeed, Canada's population surged 3% year on year in Q2, against just a 0.9% increase in real GDP.

Now, for a federal government trying to wrap its arms around Canada's ballooning population, the report had some things to like, added the bank. Namely, growth edged down from the prior quarter on the back of a smaller increase in temporary residents.

In an encouraging sign for the government, non-permanent inflows have cooled for three straight quarters, although they remain elevated. Less encouraging was that the share of Canada's population accounted for by temporary residents rose to 7.3% and could push even higher in the next quarter or two. This is a far cry from the government's stated goal of getting this share down to 5% by 2027.

All told, Canadian events this week echoed many of the same trends that have been evident for the economy for some time and provided little scope to change TD's outlook on rates.