Employment gains, job hunter influx clears way for rate hike: experts

Canada received a dose of new jobs last month, maintained sturdy wage growth and saw more people searching for work — all seen as positives by experts who believe the path is clear for the central bank to raise interest rates next week.

The economy added 31,800 positions in June and the unemployment rate rose to six per cent, from 5.8 per cent in May, Statistics Canada reported Friday in its latest labour force survey.

Many analysts read the higher jobless rate as an encouraging sign because the influx of nearly 76,000 job seekers back into the labour market last month suggested more people are optimistic they can find work thanks to the hotter economy.

The latest jobs report, which also contained weaker data points, arrived less than a week before the Bank of Canada’s upcoming interest-rate decision next Wednesday.

Ahead of the release Friday, expectations had already strengthened that governor Stephen Poloz will raise the benchmark at the meeting for the first time since January. The bank’s overnight rate target is 1.25 per cent.

For many, the jobs numbers helped reinforce their predictions.

“This report was more than enough to seal the deal on a July rate hike from the Bank of Canada,’’ said Frances Donald, a senior economist with Manulife Asset Management.

Donald said key indicators from the labour force data included the higher participation rate and still-strong wage gains.

Average hourly wage growth, which is closely watched by the Bank of Canada ahead of its rate decisions, remained firm last month at 3.6 per cent. The number, however, did come down from its nine-year high in May of 3.9 per cent.

The predictions that Poloz will hike the interest rate, a move that will likely prompt Canada’s big banks to raise their prime rates, come even though the economy is facing significant uncertainty.

The unknowns include Canada’s intensifying trade dispute with the United States and the challenging renegotiation of the North American Free Trade Agreement. There are also growing fears of global disruptions as a trade fight escalates between the U.S. and China.

Donald believes Poloz won’t be knocked off his economic outlook by trade uncertainties because he has communicated that they largely remain hypotheticals at this point.