Yahoo Finance Canada's labour market adds 27K jobs in May, unemployment ticks up to 6.2%
Canada’s labour market added a net 26,700 jobs in May while the unemployment rate ticked up to 6.2 per cent, Statistics Canada said on Friday. With wage growth also edging back up, markets trimmed bets that the central bank will reduce interest rates again in July, although a cut is still on the table.
The increase in jobs was due to more part-time work. Full-time jobs declined 36,000 in May, while part-time employment jumped 62,000. Statistics Canada said in the involuntary part-time rate – meaning the proportion of workers who could not find full-time work due to poor business conditions – was up 18.2 per cent in May, up from 15.4 per cent last year.
The unemployment rate increased as job growth failed to keep up with Canada's population surge.
The job growth was broadly in line with analyst expectations. Economists surveyed by Reuters expected the economy to add 22,500 jobs in May. The increase in the unemployment rate matched forecasts.
Wage growth – closely watched by the Bank of Canada – picked up in May, increasing 5.1. per cent compared to a 4.7 per cent increase in April.
"The 5.1 per cent year-over-year increase in average hourly earnings won’t sit well with the Bank of Canada," Desjardins managing director and head of macro strategy Royce Mendes said in a research note on Friday. However, he noted that "officials appear to believe that much of the recent strength is due to wages catching up with consumer prices" and that wage growth should gradually settle back to a more sustainable range amid a deceleration in inflation.
"The rising unemployment rate is enough to keep the Bank of Canada on track to reduce rates again in July. That said, there is a significant number of data releases between now and then," Mendes said.
The Bank of Canada cut interest rates for the first time in more than four years on Wednesday, bringing its benchmark rate to 4.75 per cent, and left the door open to further cuts if inflation continues to ease. The central bank's next interest rate decision is on July 24.
Money markets trimmed the odds of a cut after the labour force data release, from more than 50 per cent to 44 per cent, according to Reuters.
Corpay chief market strategist Karl Schamotta wrote in a research note on Friday that the jobs increase is "casting doubt on the likelihood of a rate cut at the Bank of Canada's next meeting."
"Expectations for a rate cut at the Bank of Canada’s July meeting are falling, with policymakers seen as less likely to deliver back-to-back moves," Schamotta said.
"Taken in combination with the prior month’s expansion, today’s data is consistent with a re-acceleration in labour market and economic conditions, potentially giving policymakers pause as they seek to balance growth and inflation risks in the summer months."
BMO chief economist Douglas Porter wrote that the "mixed bag" report doesn't move the needle for the Bank of Canada in terms of its rate decision. He noted the rise in the unemployment rate counters the increase in wages.
"What may have a bit more sway on the outlook for the Bank is today's surprisingly robust U.S. payrolls report, which has again pushed back Fed easing prospects. Ultimately, though, policy will be driven by domestic factors, and the next two CPI reports will shape the July rate decision."
In April, the labour market blew past economist expectations, adding 90,000 jobs. The unemployment rate that month remained unchanged at 6.1 per cent.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
Download the Yahoo Finance app, available for Apple and Android.
