Highlights:
- May employment unexpectedly fell 7.5K following a 1.1k drop in April. To date this year employment has declined an average of 10k per month but is still up 20k per month over the last 12 months.
- Despite declining employment, the unemployment rate has remained low averaging 5.8% to date this year and thus below assumed full employment within a range of 6% to 6 1/2%.
- The annual increase in wages rose to 3.9% from 3.3% in April reflecting in part a minimum wage increase in Quebec though tight labour markets was also likely a key factor.
Our Take:
Canadian May employment came in weaker than expected dropping 7.5k following a 1.1k drop in April. To date this year employment has declined on average around 10k per month but is still up 20k per month over the last 12 months. That is still almost double what we view as trend employment growth. As well, despite the recent weakness in employment growth the unemployment rate has remained low averaging 5.8% to date this year and thus below estimates of full employment of 6% to 6 1/2%. An economy operating beyond capacity was reinforced by the year-over-year increase in average hourly earnings steadily rising this year to the 3.9% recorded in May relative to the 2.9% that prevailed the end of last year. Some of this pressure likely reflected minimum wage increases introduced this year in both Ontario and Quebec though these legislated wage increases do not explain all of the upward pressure. Evidence of labour markets operating slightly beyond capacity with a low unemployment rate and attendant upward pressure on wage growth argue for the Bank of Canada to continue tightening.
