Statistics Canada says the unemployment rate rose to 5.4 per cent in June — the highest it’s been in over a year.
That’s up from 5.2 per cent in May and the highest it’s been in over a year. It also marked the second month in a row the unemployment rate has risen as economists watch for softening in the labour market amid high interest rates.
The increase came as the Canadian economy added 60,000 jobs for the month, far more than was estimated by economists and driven by gains in full-time work.
With more people searching for work and Canada’s population growing, the unemployment rate pushed higher.
“The rapidly growing labour force, which was also helped along by a rise in participation, will further ease some of the labour shortages reported by employers,” wrote Desjardins economist Royce Mendes in a note.
Population growth will also mean additional demand for goods and services “in an economy that’s already running too hot,” he said. “But on the whole, this was a very strong labour market update.”
Job gains were concentrated in wholesale and retail trade, manufacturing, health care and social assistance, and transportation and warehousing.
Likely good news for central bank
The loosening of the labour market likely comes as good news to the Bank of Canada, which is looking for signs that its aggressive rate hikes are working to cool the economy.
The central bank has said repeatedly that Canada’s hot labour market is contributing to high inflation, raising concerns about the pace of wage growth in particular.
However, Statistics Canada said year-over-year wage growth slowed significantly last month, rising 4.2 per cent from a year ago. That compared with a year-over-year gain of 5.1 per cent in May.
The Bank of Canada will be paying close attention to the report as it gears up for its interest rate decision next week.
Its move to raise interest rates last month has led many forecasters to expect another rate hike on July 12.
The current pace of hiring likely exceeded the central bank’s expectations when it paused its rate hikes earlier this year, according to Mendes.
“The return to solid job growth in June should, therefore, lock in a second consecutive 25bp rate increase next week as central bankers scramble to tamp down the surprisingly resilient economy and resultant excess inflationary pressures,” he wrote.
The central bank hasn’t given any clear indication of its plans, saying it will make its decision based on the economic data.
Its key interest rate is at 4.75 per cent, the highest it has been since 2001.
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