Canada Adds 26,700 Jobs, Unemployment Rate Rises to 6.2%

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(Bloomberg) — Canada’s labor market added fewer jobs than the rise in the working-age population, pushing the unemployment rate higher and keeping more rate cuts on the table this year.

The country added 26,700 positions in May and the jobless rate rose 0.1 percentage point to 6.2%, Statistics Canada reported Friday in Ottawa. The figures were slightly stronger than expectations for a gain of 22,500 positions and matched the expected unemployment rate, according to the median estimate in a Bloomberg survey of economists.

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The unemployment rate has trended up since April last year, rising 1.1 percentage points over that period.

Friday’s report supports the Bank of Canada’s view that the economy is still operating in excess supply, which has helped relieve price pressures. A rapidly expanding labor pool from high levels of immigration has continuously outpaced job creation over the past year, one reason policymakers opted to start their easing cycle.

On Wednesday, the Canadian central bank became the first Group of Seven central bank to pivot to less restrictive policy, cutting the benchmark overnight rate by 25 basis points to 4.75%. While Governor Tiff Macklem said it’s “reasonable to expect further cuts” to borrowing costs, Canada’s rate path will be contingent upon sustained easing of core inflation.

The greenback surged as stronger-than-expected US jobs data was released at the same time. The Canadian dollar fell by less than any other Group of 10 currency, down 0.35% on the day to C$1.372 per US dollar. Canadian two-year government bond yields rose about five basis points on the day. Ten-year yields rose seven basis points to 3.46% as of 8:45 a.m. in Ottawa.

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Money markets repriced the odds of a Canadian rate cut in July to about 55%, down from roughly 65% the day before.

Macklem has said that his central bank is “not close” to the limits of divergence from the Federal Reserve. Historically, the countries’ interest rates have tended to take a similar path, and when they don’t, there’s some pressure on the currency. A weak loonie means higher import costs, risking higher inflation.

Wage growth in Canada shot up in May. Hourly wage for permanent employees accelerated to 5.2%, faster than expectations of 4.7% and up from 4.8% a month earlier. That’s the strongest pace since January, but Macklem and his officials have said they expect wage pressures to moderate gradually.

The acceleration in wage growth is likely to attract some attention from the Canadian central bank, Charles St-Arnaud, chief economist at Alberta Central, said in an email.

“Overall, we believe the labor report will have little impact on the Bank of Canada,” he added.

“The language from the Bank of Canada earlier this week suggests that, as long as inflation continues to moderate and remains consistent with the inflation target, especially the momentum in measure of core, further easing in monetary policy is likely.”

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Stephen Brown, an economist at Capital Economics, also flagged wage growth as a concern.

“The further rise in the unemployment rate in May shows that the labour market continues to loosen, but the surprising pick-up in wage growth still provides reason to be cautious about the idea that the Bank of Canada will cut interest rates again at the next meeting in July,” he said in a report to investors.

This is the first of two jobs reports before the next rate decision on July 24, when policymakers will also update their economic forecasts. Some economists have already called for another reduction at that meeting, even as policymakers earlier said that they expected the pace of easing to be “gradual.”

The job gain was driven by part-time jobs, which increased by 62,400 positions, while full-time jobs fell by 35,600.

Total hours worked were unchanged in May and were up 1.6% from a year ago.

The employment rate — the proportion of the working-age population that’s employed — fell one-tenth of a percentage point to 61.3%. That’s the seventh decrease in the past eight months, highlighting a trend of immigration-driven population growth outpacing employment.

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The participation rate held steady at 65.4%.

Job gains were led by increases in health care and social assistance, which saw the third straight monthly increase, as well as finance and real estate and business and other support services. Construction, transportation and warehousing and educational services shed the most jobs.

The private sector gained 17,600 jobs, while the public sector lost 7,500 jobs and self-employment rose by 16,600.

Regionally, employment rose in three provinces, led by Ontario, while Alberta saw the biggest decline.

—With assistance from Jay Zhao-Murray.

(Adds market, economist reaction.)

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