Canada's unemployment rate stable in May

People line up at the Resource Canada offices in Montreal on April 9, 2009. THE CANADIAN PRESS/Ryan Remiorz

OTTAWA - The Canadian economy's ability to keep generating jobs was put the test in May, with employment gains slowing sharply to 7,700 after two straight months of massive increases.

Last month's more tame result was not altogether unexpected, given the country's economic growth rate slipped below two per cent in the first quarter.

Finance Minister Jim Flaherty said Friday the numbers were modest, but consistent with recent economic trends.

"Obviously I wish for stronger economic growth. We have to live with what we have. We planned on that basis ? we weren't starry-eyed when we did the economic planning for the budget," he said.

"I am concerned (about) relative weakness in the U.S. economy. That is a concern for Canada."

Economists had anticipated a slowdown on the labour front, given that March and April saw an eye-popping 140,000 new jobs created, a 30-year high for a two-month period.

They had already pencilled in a employment pick up of only 5,000 jobs, the lowest expectation going into a Statistics Canada report in many months.

"I'm just relieved it wasn't an outright decline," said Doug Porter, Bank of Montreal's deputy chief economist.

"It's far from a surprise that we get a little bit of a slowdown in job creation, especially given what just happened south of the border," where jobs growth has also slowed significantly.

The small increase in Canadian employment was due to the addition of self-employed, government and part-time workers, which offset a decline in full-time employment in the private sector ? potentially a sign that Canadian businesses were cautious about adding jobs.

It was not enough, though, to move the unemployment rate off 7.3 per cent.

The May jobs report was seen as an indication that the debt crisis and recessionary climate in Europe hadn't spooked Canadian employers yet.

Porter said there was reason to cheer that Canada's manufacturing sector posted a 36,400 jobs pick-up, and annualized growth rate for wages rose to three per cent from 2.3 per cent.

The factory gain was the sixth consecutive monthly increase, lifting jobs expansion in Canada's hard-pressed manufacturing sector to 3.3 per cent from last year, noted Derek Holt of Scotia Capital.

Still, there were several underlying weaknesses in the Statistics Canada report.

The main negative was that there were 15,600 fewer employees last month than in April, and the private sector shed 22,500 workers. As well, the number of new part-time workers outnumbered full-time by four to one.

Those numbers were mitigated by a rise of 23,300 in the self-employment category, which is usually a sign of labour market weakness. As well, government hiring rose by 6,900.

Looking down the road, news that Canada's trade performance returned to negative with a $367 million deficit in April following five months of surpluses, gives some evidence to the Bank of Canada's view that trade will be a weak contributor to the economy this year.

A report on hiring intentions by BMO issued after the jobs data suggests firms will be cautious about ramping up staffing levels going forward. The survey of employers found less than half ? 46 per cent ? saying they plan to hire this year.

The Canadian Labour Congress called on the Harper Conservatives to withdraw the proposed tightening to employment insurance coverage, given the softness of the numbers.

"If we are to believe the prime minister when he says that Canada's economic recovery remains very fragile ? and the new data ... suggest we should ? then this is the wrong time to bulldoze through with radical changes to a major economic program like EI," he said.

Analysts said the fresh data will likely have no effect on the Bank of Canada's thinking about interest rates. The central bank is likely to stay on hold for some time, they said, given the uncertainty about how events in Europe will unfold.

May's numbers brought job creation over the past 12 months to 203,000, consistent with an economy that is growing, but modestly. Almost all have been full time.

Besides the big gain in manufacturing, Statistics Canada said employment in education services also increased, by 25,700, and there were 10,700 more workers in the agriculture sector.

Offsetting the gains, construction shed 27,000 workers and employment in information, culture and recreation fell by 27,300.

Regionally, Quebec experienced the most job gains during month ? 14,700 ? and Ontario the biggest decline ? 18,700. Alberta also saw a significant increase in employment with 9,800 net new jobs, dropping the province's unemployment rate to 4.5 per cent, which along with Saskatchewan is the lowest in the country.

British Columbia saw its unemployment rate jump to 7.4 per cent from 6.2, but only because there were 30,500 more people looking for jobs in the province in May.

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