Report likely to show slowdown in job creation

Canada's labour market likely hit a soft patch of its own last month, the first of many where job growth is expected to be tepid as exports sputter and governments cut hiring and spending.

Statistics Canada will probably report Friday that employers added 10,000 workers in June, a far from disastrous tally, but well below the average 27,000 new jobs created in each of the previous three months and reflective of a recovery that has slowed significantly since early in the year.

"Given the clear cooling in the broader economy through the spring, it will be tough to maintain that favourable pace," Doug Porter, deputy chief economist at BMO Nesbitt Burns Inc. in Toronto, said in a note to clients last Friday.

The consensus forecast for job creation in June would be just enough to keep the unemployment rate at 7.4 per cent, economists say. That means the rate will stay at its lowest level in two years, although it only fell in May because the labour force shrank as fewer people looked for work.

Somewhat paradoxically, the rate could climb if, for instance, enough students had the confidence to cast about for summer employment at the end of the school year.

With consumer spending set to slow over the second half, and a range of external risks that are keeping many private-sector employers too nervous to take on new staff, analysts see the unemployment rate remaining around 7 per cent until the end of 2012 or later. Governments at all levels have entered a long period of restraint, and some federal agencies in Ottawa – including the Bank of Canada – have already started laying people off. Also, the strong Canadian dollar is still making it tough for many exporters to increase their market share overseas, especially as demand softens from the United States to Europe to Asia.

That aside, there are three key elements to watch for in Friday's report.

– First, higher-paying manufacturing employment has fallen for three straight months. A fourth drop would suggest the effects of the Japanese natural disasters on North American supply chains were felt for a bit longer than expected.

– Second, the composition of jobs will be important. If much of the monthly increase is in self-employment, for instance, as it was in May, that would show people aren't able to find work elsewhere. Which would be discouraging, since personal entrepreneurship has limits.

– Finally, and arguably most important, Bank of Canada Governor Mark Carney – whose next interest-rate decision is July 19 – will be watching for signs of inflationary pressure from wages. So far, wage gains haven't posed much threat, cooling in May to a 2.2 per cent annual pace, the slowest increase since December.

But a report last week from Statscan showed the annual rate of core inflation, which strips out volatile items like gasoline, is inching closer to the bank's 2 per cent target rate faster than Mr. Carney was expecting. That has renewed debate about whether he'll be able to stay on hold for the rest of the year, regardless of the host of uncertainties dotting the global economic landscape.

"Any evidence that wages are beginning to pickup steam will pose a risk to our forecast for the Bank to remain on hold for the balance of the year," Derek Burleton, deputy chief economist at Toronto-Dominion Bank, said in a note to clients.