Canada's job growth accelerated in May at its fastest pace in eight months, and annual wage growth improved, prompting economists to suggest the Bank of Canada could raise interest rates sooner than anticipated. Employers added 54,500 jobs last month, Statistics Canada said on Friday, handily topping the economists' forecast for a gain of 11,000. Driven by full-time hiring, this was the biggest increase since September.
With hiring in both the service and goods-producing sectors, the report adds to evidence of upward economic momentum after strong growth in the first quarter, analysts said. Bank of Canada Governor Stephen Poloz said on Thursday he was comforted with recent signs of strength. The unemployment rate rose to 6.6 percent, as expected, as more people looked for work.
"Certainly, the Bank of Canada will find it difficult to ignore a fairly steady stream of positive indicators we are seeing for the economy and the labour market," said BMO Capital Markets senior economist Sal Guatieri. "Clearly the odds are shifting toward an earlier Bank of Canada rate increase." A separate report showed industrial capacity rose to its highest level since 2007 in the first quarter.
The jobs data led traders to raise their bets modestly for an interest rate hike by the end of the year, with markets pricing a 24.8 percent probability of an increase by December. The Canadian dollar strengthened against the greenback. Nonetheless, many economists expect the central bank to wait until next year to raise rates, particularly given uncertainty about trade policies from the United States, Canada's biggest trading partner.
Friday's report showed average hourly wages were up 1 percent from a year earlier after growing at an annual 0.5 percent in April. The Bank of Canada has pointed to recent muted pay growth as a sign of slack in the economy. While wage growth is still slow, economists said the trend was at least improving. "We're carving out a bottom on wage growth," said Bank of Nova Scotia economist Derek Holt. Statistics Canada's website went down shortly after the data was released. Communications officer Laurence Beaudoin-Corriveau said a power outage was affecting the statistics bureau's major systems. The website has been plagued by outages and delays in recent months. The government said in March that hackers had broken into a web server at Statistics Canada, although they were stopped before they stole any data.