Unemployment rate rises for first time in nine months in Canada

Canada unexpectedly shed jobs in May and the unemployment rate rose for the first time in nine months, data showed on Friday, a first sign of employment softness after the central bank hiked rates this week, in part because of the tight labour market.

The economy shed a net 17,300 jobs in May, entirely in full-time work, while the jobless rate inched up to 5.2 per cent, Statistics Canada said.

Analysts surveyed by Reuters had forecast a net gain of 23,200 jobs and for the unemployment rate to edge up to 5.1 per cent in May after staying at 5.0 per cent since December, reports Reuters.

A series of surprisingly strong economic data and stubbornly high inflation led the Bank of Canada to raise its overnight rate to a 22-year high of 4.75 per cent on Wednesday.

After the jobs figures, money markets continued to price in another interest rate hike, potentially as soon as July, and many analysts forecast another increase in July as the bank struggles to bring down inflation that remained more than double its 2 per cent target in April.

 “Some cracks appeared within the Canadian labour market in May, but these may not yet be wide enough to convince the Bank of Canada that inflation is about to meaningfully cool off,” said Andrew Grantham, senior economist, CIBC Capital Markets.

The central bank had been on hold since January to assess the impact of previous hikes after raising borrowing costs eight times since March 2022 to 4.50 per cent - the fastest tightening cycle in the bank’s history.

On Thursday, Bank of Canada Deputy Governor Paul Beaudry singled out unexpectedly strong household spending, a rebound in the housing market, a tight labour market and sticky core inflation as the main factors behind the latest move.

Beaudry said the next move would depend on economic data and declined to say whether the bank had a bias going into the July policy meeting.

 “While this is an ugly set of jobs data, the labour force survey is notoriously volatile,” said Royce Mendes, head of macro strategy at Desjardins Group. “It would need to be corroborated with a host of additional information to change our view that the Bank of Canada will hike again in July.”

Reports on jobs, inflation and gross domestic product are due out ahead of the next policy announcement on July 12.

Employment for youth aged 15 to 24 dropped by 77,300 jobs in May, more than offsetting the nearly 63,000 gained in the core 25 to 54 age group. The net job losses capped an eight-month upward trend in employment gains.

The average hourly wage for permanent employees - a figure the Bank of Canada watches closely - rose 5.1 per cent from May 2022, a notch lower than April’s 5.2 per cent year-over-year increase.

Employment in the goods sector increased by a net 22,800 jobs, led by manufacturing, while the services sector lost a net 40,100 jobs, largely in business, building and other support services.

The Canadian dollar was little changed at 1.3350 to the greenback, or 74.91 US cents, pulling back from an earlier one-month high at 1.3317.