The unemployment ratein Canada inched up to a two-year high in May, while wage growth also accelerated.
This presents mixed signals for the Bank of Canada’s (BoC) upcoming rate decision in July.
Recent data showed the jobless rate rose to 6.2 from 6.1 percent in April, aligning with forecasts.
According to Statistics Canada, this marks a 1.1 percentage point increase since April 2023.
Despite the rising unemployment, average hourly wage growth for permanent employees increased to an annual rate of 5.2 from 4.8 percent in April, the highest rate since January’s 5.3 percent.
This acceleration in wage growth, especially when it outpaces inflation, complicates efforts to control consumer price increases.
In April, annual inflation stood at 2.7 percent.
The BoC warned high wage growth could hinder progress in curbing inflation
Jules Boudreau, senior economist at Mackenzie Investments, said: “It’s a bit of an ugly job report.
“The biggest worry is that wages have gone up, which is problematic for the Bank of Canada.”
He noted the BoC had previously hesitated to cut rates when wages were rising too quickly.
Following the jobs data, money markets reduced bets on a rate cut in July from over 50 percent to 44 percent.
The BoC warned sustained high wage growth could hinder progress in curbing inflation.
The bank cut its key policy rate to 4.75 percent, indicating that further easing would be gradual and data-dependent. The next rate decision is scheduled for July 24.
The Canadian dollar traded 0.36 percent lower at 1.3717 to the US dollar, or 72.91 US cents, as investors reacted to stronger-than-expected US jobs data.
In May, the Canadian economy added 26,700 jobs, surpassing analyst forecasts in a Reuters poll by over 18,000.
However, the modest job gains were largely due to population growth outpacing the economy’s capacity to absorb new labor market entrants.
Economists suggested that job additions below 45,000 would push the unemployment rate higher without a slowdown in population growth.
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Andrew Kelvin, head of Canadian and global rates strategy at TD Securities, said: “It’s a weak enough increase in employment, given the unemployment rate change, for the BoC to feel comfortable cutting rates again at the next meeting.”
However, he noted wage growth above 5.2 percent could be concerning for the BoC.
According to Statistics Canada, May’s employment gains were driven by part-time work, which offset losses in full-time positions.
The proportion of part-time workers who were unable to find full-time jobs or work part-time due to poor business conditions was 18.2 percent in May, the highest since December 2021.
The goods sector lost 20,700 jobs, primarily in construction, while the service sector gained 47,400 positions, led by healthcare, social assistance, and finance-related jobs.
