Canadian Employment (May 2018)

Another tick down for Canadian employment in May

• Canadian employment fell by 7.5k net positions in May. The unemployment rate remained unchanged at 5.8%, as slightly fewer Canadians looked for work. 
• The soft headline print was matched with soft details. Full-time employment pulled back by 31k net positions, while 23.6k part-time positions were added. In terms of employment types, the public sector added 12.9k jobs, while private employment dropped 4.8k. Self-employment also dropped 15.6k, bringing the overall tally into negative territory.
• Goods-producing industries again led the way lower, shedding 29k positions on the back of weakness in manufacturing (-18.3k) and construction (-13k). Conversely, the service-sector continued to add jobs (+21.5k), with notable gains in accommodation and food services (+17.6k), and professional services (+17.0k).
• Looking across the provinces, much of the decline can be chalked up to B.C., where employment fell 12.4k in May. Mixed performances were observed elsewhere.
• Aggregate hours worked were effectively unchanged in May, leaving the year-on-year gain at 2.0%. Wages were up quite a bit, rising 3.9% (year-on-year) for permanent employees – the strongest advance since April 2009.

Key Implications

• Disappointment is today's theme. Often a weak headline print will mask encouraging details, but whether it is the FT/PT employment split, the drop in the number of people looking for work, or other details, there was little positive that can be taken away from today's report (with the notable exception of wages).
• Even on a trend basis – the better way of looking at this volatile series, the six month moving average stands at just 2.7k. An unemployment rate below its longer-term 'neutral' level should bring a moderation of job gains with it, but 2.7k is somewhat below what would be expected. 
• Still, this report can be seen as confirming the tightness of Canadian labour markets. Wage gains hit a nine-year high, undoubtedly helped by Quebec's minimum wage increase, but the broader story of price pressures remains – 12 of 16 major industries saw wage growth above the 3% mark in May, which also marked the 12th straight month of real wage gains.
• The Bank of Canada may not be encouraged by all the details of today's report, but wage growth nearing 4% y/y will be certain to garner discussion. All told, there is little in today's report to alter our view that the Bank remains likely to hike its policy rate in July, switching into 'hold and assess' mode thereafter.

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