Economy starting to slow down

The Canadian economy is showing some signs of cooling, with little change in employment in May, a decline in trend-setting single-family-housing starts, and a slowdown the month before in both exports and imports.

But the evidence may not be enough to keep the Bank of Canada from raising interest rates, analysts said Friday.

"Today's trio of economic releases in Canada sends a mixed but generally positive picture," said BMO Capital Markets economist Douglas Porter. "On balance, the economic results don't even give the Bank of Canada an amber light for rate hikes, let alone a red light."

Employment increased in May by about 9,300, which was less than expected. Combined with the loss of about 5,000 jobs the month before, this left the net job gain so far this quarter at just 4,000.

"Employment was little changed for a second consecutive month in May, with full-time gains mostly offset by losses in part-time," Statistics Canada said.

So far this year, employment has increased by 162,000, a one-per-cent increase, down slightly from the 1.3-per-cent increase over the first five months of last year.

"Overall, this was not a great jobs report, but it was not a disaster either," said TD Securities economist Marc Levesque. "And it certainly will not cause the Bank of Canada to flinch -- a rate hike is still on the table for July."

The jobless rate remained at its 33-year low of just 6.1 per cent, full-time employment surged by 32,700, and wage inflation, about which the central bank has expressed concern, increased to 2.8 per cent from 2.6 per cent.

Paid employment in the private sector plunged by nearly 60,000, including 12,300 factory jobs, while self-employment surged by more than 55,000.

News for factory workers will get worse, warned CIBC World Markets economist Warren Lovely.

"Every move higher for the Canadian dollar threatens to shutter another Canadian plant, and with parity in sight, there are as many as a couple hundred thousand jobs still to be bled from factory payrolls in Canada," he said.

Statistics Canada's trade report was also mixed, with the trade surplus increasing to a much higher-than-anticipated $5.8 billion in April from an upwardly revised $5.1 billion in March.

Another federal agency, Canada Mortgage and Housing Corp., also issued a mixed report on the health of the housing industry.

The annual pace of housing construction starts in May rose by a greater-than-expected 8.4 per cent to a four-month high of 229,700, it said. However, it noted that most of the gain was in starts on multiple units, which tend to be volatile, while starts on single-family homes, which are a strong indicator of housing trends, edged up a more modest 2.8 per cent.

(prepared by Eric Beauchesne/Vancouver Province)