July 13, 2008 / 12:23 AM / 9 years ago

June jobless rate rises as economy slows

OTTAWA (Reuters) - The unemployment rate rose to its highest in over a year in June as employers shed full-time workers, confirming a long-awaited slowdown in the labor market as the economy slows.

Statistics Canada said the unemployment rate ticked higher to 6.2 percent from 6.1 percent in May, a level not seen since April of last year but still near a 30-year low. The economy lost 5,000 jobs in June, the biggest decline since August 2006 but considered by the agency to be a flat reading due to statistical error.

The weakness, while slightly worse than expected, is unlikely to sway the Bank of Canada from its inclination to keep interest rates steady next week, analysts said.

Canada's labor market had consistently surprised markets with its strength during much of 2007 and early 2008. But June marked the fourth consecutive month of comparatively weaker job gains and the news pushed the Canadian dollar to a session low against the U.S. dollar.

"Overall the labor market is losing strength. I think that's the big picture here and maybe the best way to look at it is just the gradual uptick in the unemployment rate since the start of the year," said Doug Porter, deputy chief economist at BMO Capital Markets.

"I don't think it's weak enough to get the bank to change their bigger view of the economy."

Wages rose a sharp 4.3 percent year-on-year in June but were down from 4.6 percent in May, according to the average hourly salary of permanent employees, the agency said.

The employment data fell below the expectations of analysts surveyed by Reuters who had expected a gain of 10,000 jobs and an unchanged jobless rate.

The Canadian dollar moved to C$1.0160 the U.S. dollar, or 98.43 U.S. cents, from pre-data levels around C$1.0115 to the U.S. dollar, or 98.86 U.S. cents.

RATES ON HOLD

The Bank of Canada is widely expected to keep its benchmark overnight interest rate unchanged at 3 percent next Tuesday. But as it keeps a close watch on oil and commodity prices that are pressuring inflation, it must also consider a slowdown in economic growth that until recently had set it on a rate-cutting path.

"I think there were some people thinking that there may be an outside chance that the bank becomes a little bit more aggressive with respect to monetary policy," said George Davis, chief technical strategist at RBC Capital Markets.

"But I think this number will provide a little bit of an offset to that view and we will probably see a little bit more of neutral expectations for the rate decision."

Employers reduced full-time staff from their payrolls during the month while part-time positions surged, a trend that has been sustained over the past 12 months.

Job growth was flat or negative across a broad spectrum of industries, with the biggest drop in support services for business and buildings, followed by construction. Employment in manufacturing was unchanged in the month.

Employment in health care and social assistance also declined. The only industry with notable employment gains was professional, scientific and technical services, Statscan said.

As with most economic indicators in Canada, job gains in the resource-rich west contrasted with declines in the most populous central province of Ontario. Alberta, along with Nova Scotia, experienced gains in June that pushed the employment rate to record high levels.

Additional reporting by Frank Pingue in Toronto; Editing by Frank McGurty

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