Unemployment rate rises in Canada and U.S. despite adding jobs

A healthy gain of 31,800 jobs last month wasn’t enough to keep Canada’s unemployment rate from rising to 6% as more people searched for work, Statistics Canada said Friday.

The agency’s latest labour force survey shows the jobless rate for June increased from 5.8% in May to break the 6% barrier for the first time since last October, when it was 6.2%.

The unemployment rate moved up last month despite the addition of new jobs because nearly 76,000 more people entered the workforce.

The report also found that average hourly wage growth, which is closely watched by the Bank of Canada, remained strong last month at 3.6%. The number, however, did come down from its nine-year high in May of 3.9%.

“A higher unemployment rate coinciding with a strong jobs gain in June is the best of possible worlds for Canada, with more of us working, but perhaps a bit more room for that to continue without triggering an inflation spike,” says CIBC Capital Markets chief economist Avery Shenfeld, in Friday commentary.

The latest jobs figures arrived less than a week before the Bank of Canada’s next interest-rate decision.

Expectations have strengthened that governor Stephen Poloz will raise the benchmark for the first time since January. Experts predict the move even though the economy is facing significant uncertainty from Canada’s intensifying trade dispute with the United States as well as growing fears of a global trade war.

Read: Feds unveil final list of retaliatory tariffs

In his commentary, Shenfeld says the data is “good enough” to encourage the central bank to hike.

On trade, he says, the news “wasn’t as good, with the deficit rising to $2.8 [billion], as a 1.7% rise in imports (1.2% in volume terms) combined with a 0.1% dip in exports that was a more notable 1% fall in real terms, led by metal ores and minerals.” However, he doesn’t expect the loonie will be affected.

Employment and trade details

Compared with a year earlier, overall employment was up 1.2% following the creation of 214,900 jobs, which was driven by 284,100 new full-time positions.

A closer look at the June numbers shows Canada added 9,100 full-time jobs in June and 22,700 part-time positions. The public sector gained 11,800 jobs and the private sector lost 2,000.

The goods-producing sector added 46,600 positions in June thanks to job-creation boosts in construction, natural resources and manufacturing.

Services sectors, meanwhile, lost 14,700 jobs mostly because of big decreases in accommodation and food services positions as well as wholesale and trade.

Ontario added 34,900 jobs for an increase of 0.5% compared with the previous month, while Saskatchewan posted its largest monthly gain in over six years with the creation of 8,300 positions, which represented 1.5% growth.

Youth unemployment increased to 11.7% last month, up from 11.1% in May.

In a separate report Friday, Statistics Canada said the country’s merchandise trade deficit with the world widened in May to nearly $2.8 billion. The international trade deficit was about $1.9 billion in April and $3.9 billion in March.

The May numbers show that imports expanded 1.7%, while exports dipped 0.1%.

Higher imports in May of aircraft, other transportation equipment and energy products fuelled most of the increase. The figure for aircraft imports more than tripled to $937 million due to the purchase of several air liners from the U.S.

Exports declined mostly because of weaker trade on motor vehicles and parts as well as metal ores and non-metallic minerals.

The report showed that Canada’s trade surplus with the U.S. narrowed to $3.3 billion in May, from $3.7 billion April, as more imports headed north across the border and south-bound exports decreased.

Read: Look beyond optimistic tone of BoC biz survey

U.S. unemployment rate also rises

U.S. employers kept up a brisk hiring pace in June by adding 213,000 jobs in a sign of confidence despite the start of a trade war with China.

The Labor Department said Friday that the unemployment rate rose to 4% from 3.8% as more people began looking for work and not all of them found it.

On the same day that the Trump administration began imposing tariffs on US$34 billion in Chinese imports and China retaliated with their own tariffs, the job gain showed that the nine-year old U.S. economic expansion—the second-longest on record—remains on solid ground.

Average hourly pay rose just 2.7% from a year earlier. The low jobless rate has yet to force employers to offer higher wages in order to fill job openings.

The broader U.S. economy appears to be on sturdy ground. Economists are forecasting that economic growth accelerated to an annual pace of roughly 4% during the April-June quarter, about double the previous quarter’s pace.

Signs of economic strength have helped bolster hiring despite the difficulty many employers say they’re having in finding enough qualified workers to fill jobs.

Read: Despite weak Q1, sizzling U.S. GDP forecasted for Q2

Manufacturers and services firms have said in recent surveys that their business is improving despite anxiety about the tariff showdown between the United States and China. Housing starts have climbed 11% so far this year. Retail sales jumped a strong 0.8% in May in a sign that consumers feel secure enough to spend.

But while economic growth appears solid, the gains have been spread unevenly. President Donald Trump’s tax cuts have provided a dose of stimulus this year, though it has been tilted significantly toward wealthy individuals and corporations. Savings from the tax cuts enabled companies in the Standard & Poor’s 500 stock index to buy back a record number of shares in the first three months of 2018.

Yet the tax cuts have done little to generate substantial pay growth. After adjusting for inflation, the Labor Department reported last month that wages have essentially been flat for the past year. Still, economists say they think the low unemployment rate will eventually force more employers to offer higher pay in order to fill jobs.

The economy also faces a wild card in the tariffs being imposed on China. On Friday, the Trump administration begins taxing US$34 billion of Chinese imports at a 25% rate. China has pledged retaliatory tariffs of the same magnitude. Any escalation in the trade conflict could disrupt hiring as companies deal with higher prices.

Nor is the trade showdown with China an isolated skirmish. The Trump administration has applied tariffs on steel and aluminum from allies like Canada and Mexico and has threatened to abandon the North American Free Trade Agreement with those two countries. Trump has also spoken about slapping tariffs on imported cars, trucks and auto parts, which General Motors has warned could hurt the U.S. auto industry and drive up car prices.

Also read: Fed officials discussed yield curve, ‘accommodative’ monetary policy