Income Strategy July 6, 2007:

Stats Canada released the Canadian Labour Force Survey for June, the economy added 35,000 new jobs during the month all of them fulltime positions. There were a total of 63,000 full time jobs created while part time positions declined by 28,000 in June.

The unemployment rate stayed unchanged at 6.1% for the fifth consecutive month, staying at a level not seen in three decades. The unemployment rate did not decline due to the large number of people that entered the work force in June.

So far this year 197,000 jobs have been created an increase of 1.2%, some provinces have been adding jobs much faster than the national average, New Brunswick 3.1%, Alberta 2.5% and BC 1.9% employment has declined in Newfoundland and Saskatchewan over the same period. Ontario which accounts for nearly 40% of total Canadian employment has seen job growth of only 0.4% in the first half of 2007. The Ontario economy has been impacted by the decline in manufacturing and export volume, due in large part to the strength in the Canadian dollar.

The average hourly earnings for the second quarter of 2007 increased by 3.2% well ahead of the increase in the Consumer Price index of 2.2% during the quarter.

The Bank of Canada will have to walk a fine line when deciding interest rates at their next meeting July 10th. The current robust pace of job creation and wage growth is causing increasing concerns about potential future inflation, but higher interest rates will push the Canadian dollar up creating more negative consequences for the manufacturing sector.

The Bank of Canada will have to take in to account that the Federal Reserve has not increased interest rates for over a year which has led to a weaker US dollar over that time frame increasing the pressure on Canadian exporters.

It seems that there is a consensus view that interest rates will increase next week, I am not completely convinced, but we don’t have to wait too long to find out.

The US economy created slightly more jobs than the 125,000 that had been forecast with 132,000 jobs added in June and the two previous month’s number were revised up by a total of 75,000.

The job creation numbers in the US have been very steady for the year to date with the service sector such as tourism adding enough jobs to offset the losses in the construction sector. The rub being that generally service sector jobs do not pay as well as construction jobs. If this trend continues it will show up as declines in the average hourly earnings, this will take some of the pressure off the inflation concerns at the Federal Reserve.