Employment dropped by 70,600 in November, a much steeper decline than market expectations of a 25,000 dip. Some of the weakness reflected anticipated job cuts associated with the temporary hiring of workers for October's federal election. StatsCan reported that 27,000 public administration jobs were cut in November. The unemployment rate edged up to 6.3% from 6.2% in October marking a two-year high.

The decline in public sector jobs was almost matched with a similar number of private sector job cuts. There were cuts to both full-time (-32,400) and part-time (-38,000) employment. The goods sector saw the number of employed fall by 32,800, while service sector jobs were reduced by 37,800. There were large job losses in agriculture (-10,100) and manufacturing (-38,300) on the goods side with trade (-8,900), transportation and warehousing (-26,000) and educational services (-15,600) supplementing the job cuts in public administration on the services side of the economy. Tempering these declines somewhat were increases in the scientific services, health care, food and accommodation services and cultural industries.

Ontario bore the brunt of job losses in the month, with 66,000 workers cut from payrolls, 42,000 of which were in manufacturing positions. Ontario's unemployment rate jumped to 7.1% from 6.5% in October.

The key wage measure in the report, average hourly wages for permanent workers, rose 0.5% in November with the year-over-year rate picking up pace to 4.7% from 4.2% in October.

The sharper-than-expected cut to November payrolls and the steady increase in the unemployment rate from its recent low of 5.8% in February are consistent with an economy that is gearing down after a modest acceleration in growth in the third quarter. The deepening recession in the United States and persistent financial market turmoil are negatively affecting Canada's growth outlook and we expect they will weigh on the labour market going forward.

Our forecast is that the unemployment rate will continue to drift higher into next year as weak demand for Canadian exports and slower consumer and business spending lead to more job losses. Today's data is the one of the final reports before the Bank of Canada's meeting next week. We expect the Bank to lower the overnight rate by 50 basis points to 1.75% as policymakers try to cushion the economy from the impact of these downward pressures.

U.S. payrolls plunge
Today's labour force report was very weak, with payrolls dropping by a breathtaking 533,000 in November. Revisions to the data for October and September were also to the downside, with October's job losses revised up to 320,000 from 240,000 and September's decline revised to 403,000 from 284,000. The household survey indicated that the unemployment jumped 0.2% to 6.7% in November to stand at its highest level since October 1993.

The weakness was broad-based; only government employment rose (by a paltry 7,000) of the major industry categories. Goods producers cut payrolls by 163,000, while service-providers trimmed a whopping 370,000 from their payrolls.

Manufacturers cut another 85,000 positions, while the construction industry reduced employment by 82,000. Wholesalers (-23,000) and retailers (-91,000) also continued to pare back their workforce. Transportations companies lost 147,000 and financial firms trimmed 32,000 jobs.

The average workweek slipped to 33.5 hours and hours worked in the manufacturing sector fell 40.3 hours, down from 41 as recently as July. Overtime hours continued to slide and came in at 3.3 hours. The index of aggregate weekly hours, which reflects the combined effect of hours and employment, fell 0.9% in November, building on October's 0.4% dip. In October/November, this index contracted at an annualized 5% compared to the third-quarter average.

The monthly pace of wage gains, which slowed to a 0.2% rate in recent months, picked up to 0.4% in November and the year-over-year rate of the key wage measure in the report picked up to 3.7% from 3.6% in October.

The U.S. economy has shed 1.9 million jobs so far in 2008, the fastest 11-month decline since the period ending January 2002, with the unemployment rate rising two percentage points in the past 12 months. With the number of unemployed growing rapidly, a financial market crisis that has yet to let up and a housing market still in recession, U.S. consumers are likely to continue to retrench and we expect another significant contraction in spending in the fourth quarter.

Earlier reported data for November present an equally bleak picture and we forecast that the U.S. economy will contract at a 3.5% annualized pace in the quarter, which would mark the largest one-quarter slump since the early 1980s. This round of bleak economic news sets up for the Fed to lower the funds target again when they meet later this month and we anticipate a 50 basis-point rate cut to be announced. While there are some tentative signs that interbank funding rates and mortgage rates have eased up a bit in recent weeks, there's still a ways to go before credit market conditions will provide support to the economy, which means that the Fed will work to keep rates low and be vigilant in supporting areas of the market that come under duress.

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