Canada's labour market created more jobs than expected in June, as employment increased 59,900, more than Econoday's consensus of 17,500. Yet signs of easing pressures appeared in other data, with the unemployment rate rising to an above-expected 5.4 percent from 5.2 percent, the highest level since February 2022, and wage growth slowing down significantly.

Average hourly wage gains decelerated to 4.2 percent year-over-year, nearly a full percentage point from May's 5.1 percent (unadjusted), reaching their slowest pace since May 2022. After hovering between 5.1 percent and 5.4 percent between February and May, the slowdown in June is a welcome development for the central bank, which had raised rates at its last meeting partly owing to tight labour market conditions. Hours worked remained unchanged in June.

The rise in the unemployment rate was accompanied by a higher participation rate, which reached 65.7 percent, up from 65.5 percent.

Employment was led by full-time positions in June, which increased 109,600, while part-time decreased 49,800 on the month. The private sector added 82,500 jobs while the public sector shed 3,600 position. The number of employees increased 79,000 while self-employment contracted by 19,100.

Looking at the sector breakdown, most gains were in services, which added 50,000 positions, while goods-producing industries added 9,800 jobs. Three services sectors posted double-digit gains on the month totaling 63,700 jobs: wholesale and retail trade (32,600), health care and social assistance (20,700) and transportation and warehousing (10,400). By contrast, educational services were down 14,000 and professional, scientific and technical services down 6,500.

Within goods-producing industries, gains were concentrated in manufacturing, where employment increased 27,300, the largest gains since September 2020. On the downside, construction shed 13,500 positions.

Despite a higher-than-expected headline number, today's data brought important evidence of easing wage pressure, again a welcome development for the Bank of Canada. In its second quarter Business Outlook Survey released June 30, firms noted easing pressures on the labour market due to lower competition to attract workers and increased labour supply. However, they continued to expect wage gains to be larger than normal.

With today's report, Econoday's Consensus Divergence Index is at minus 4, consistent with an economy performing in line with expectations.

Overall, given the conflicting signs, the BoC might want to give itself some more time to evaluate whether the decline in the rate of wage increases will continue and whether the hiring momentum will subside.

Employment in June is expected to rise 17,500 versus May's unexpected decline of 17,300. June's unemployment rate is expected to edge 1 tenth higher to 5.3 percent.

The Labour Force Survey is a key economic indicator giving an overall picture of employment and unemployment. Employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The unemployment rate measures the number of unemployed as a percentage of the labor force.

As in the U.S., this report is used as an indicator of the health of the domestic economy. Employment trends and break-downs by industry groups highlight the strength in job creation and the implications for future sectoral activity. The unemployment rate is used as an indicator of tightness in labor markets and can foreshadow a future increase in wages. Labor force data provide investors with the earliest signs of industry performance. While other data are produced with a month or two delay, these data are available only a week to 10 days after the end of the latest month. Reactions can be dramatic - especially when the result is unanticipated.

The information in the report is invaluable for investors. By looking at employment trends in the various sectors, investors can take more strategic control of their portfolio. If employment in certain industries is growing, there could be investment opportunities in the firms within that industry.

The bond market will rally (fall) when the employment situation shows weakness (strength). The equity market often rallies with the bond market on weak data because low interest rates are good for stocks. But sometimes the two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about the potential for inflationary pressures.

The unemployment rate rises during cyclical downturns and falls during periods of rapid economic growth. A rising unemployment rate is associated with a weak or contracting economy and declining interest rates. Conversely, a decreasing unemployment rate is associated with an expanding economy and potentially rising interest rates. The fear is that wages will accelerate if the unemployment rate becomes too low and workers are hard to find.