Canada Adds 54,500 Jobs in May in Latest Boost to Outlook -- 2nd Update

Employment in Canada rose for a sixth straight month in May, besting market expectations by a wide margin, while the unemployment rate rose because more people went looking for work amid improving economic conditions.

Gains were led by full-time jobs in the private sector, another signal Canadian companies believe sales prospects are on the upswing. The result comes on the heels of strong economic growth in the first quarter and emerges after the Bank of Canada adopted a more upbeat tone following months of caution.

The Canadian economy added a net 54,500 jobs in May, Statistics Canada said Friday. Market expectations were for a gain of 15,000 positions, according to economists at Royal Bank of Canada. On a year-over-year basis, Canadian employment increased 316,800, or 1.8%, which marks the fastest annual rise in job growth in more than four years.

The country's unemployment rate rose to 6.6% in May from 6.5% in the previous month, matching market expectations. The uptick in the jobless rate can be attributed to an increase of 78,400 Canadians looking for work, the largest one-month gain in the labor force since April 2012.

The U.S. released its May jobs report last week, and it showed the unemployment rate fell to the lowest level in 16 years, at 4.3%, and data suggested employers started to add to payrolls more slowly in a tight labor market. Using U.S. data concepts, Canada's jobless rate in May was 5.6%.

The Bank of Canada left its main interest rate unchanged last month at 0.50% and in its policy statement pivoted toward a positive tone. This was reinforced in comments Bank of Canada Gov. Stephen Poloz made during a news conference Thursday following the release of its semiannual financial-system review.

"At this stage, I am comforted by the fact the economy is showing better dynamics," Mr. Poloz said.

Other economic indicators suggested job growth would continue at a decent clip. A closely watched index put together by the Canadian Federation of Independent Business hit a 30-month high last month, recovering most of the ground lost following the commodity-price swoon that started in mid-2014.

Canadian economic output advanced at a 3.7% annualized pace in the first quarter, making the country the best-performing economy among Group of Seven countries in early 2017 on the strength of consumer spending and a long-awaited rebound in business investment. On Monday, the Bank of Canada's second-ranking official, Carolyn Wilkins, is scheduled to deliver remarks in Winnipeg, Manitoba, focusing on developments in the Canadian economy.

Even amid a pickup in job creation, the Bank of Canada has exhibited caution, citing "subdued" wage growth. In May, average hourly wages climbed 1.3% from a year ago, versus a comparable 0.7% advance in the previous month, which marked the slowest increase in two decades.

"Before taking the first step in raising policy rates, the Bank of Canada is looking for greater evidence of a tightening labour market," the economics team at TD Securities said in a note to clients. "Friday's report strongly adds to that, and moreover, strengthens the view that sustained job gains will put further upward pressure on wages."

Adding to the positive jobs report was data indicating companies operated in the first quarter at their highest rate of capacity in the postcrisis period. This suggests the economy is gradually absorbing slack that is kept a lid on inflationary and wage pressure.

The May jobs report said full-time employment in Canada rose 77,000, while the number of part-time jobs declined 22,300. The bulk of net new jobs created in the past 12 months have been full-time positions. The private sector added 59,400 workers in May, and the ranks of the self-employed -- generally independent contractors -- fell 14,000.

The goods-producing and services sectors recorded robust employments gains in May, with the manufacturing adding 25,300 positions. In the first five months of 2017, factory owners have hired 43,000 workers, or an increase of 2.6%.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

June 09, 2017 09:55 ET (13:55 GMT)