• Canada added another 25,000 jobs to payrolls in May—a solid top-line number—but virtually all of the net job growth was in the broad public sector.
• Excluding the broad public sector (public administration, health, and education) private-sector employment declined by about 9,100 jobs.
• Employment performance across private-sector industries was extremely mixed.
• The good news is that most of the net gains were in full-time employment, while part-time and self-employed workers declined.
• The unemployment rate was unchanged at 8.1% at the national level, but there were large swings in the unemployment rate for Manitoba and Alberta.
• The participation rate jumped to 67.3%, a nine-month high.
• The slowdown in private-sector job creation in both Canada and the United States during May is a sign of extreme caution in the business sector, a mindset that is likely to persist in view of the recent fiscal and currency crises in Europe, the sharp increase in financial market volatility, and the plunge in key industrial commodities.

Outlook

In Canada, total jobs increased by a relatively modest 25,000 in May, but that follows on the heels of a record-setting gain in the previous month.

While the top-line employment number was reasonably solid, all of the gains came from the broad public sector—specifically public administration, education, and health. These job gains are largely connected with the second leg of the fiscal stimulus programs scheduled to hit public spending in 2010.

Excluding gains in the broad public sector, private sector employment saw small net losses. Performance across private industries was extremely mixed, with good gains in transportation and warehousing, finance and insurance, largely offset by losses in information etc., accommodation, construction, and forestry/logging.

Since the employment recovery started back in July 2009, 52% of the cumulative job gains of 310,000 have been in the broad public sector.

The unemployment rate was unchanged at 8.1% in Canada, just as we forecasted, as the participation rate jumped to 67.3%, a nine-month high. Nevertheless, when you look at the regional picture, there was a big swing in the unemployment rates for both Manitoba and Alberta. Adding the most jobs since October 2008, Alberta's unemployment rate fell from 7.4% to 6.6%. In contrast to this performance, Manitoba's unemployment rate jumped from 4.9% to 5.7%, losing the bragging rights of the lowest unemployment rate of any province.

The Canadian employment report is broadly similar to the U.S. report on May payrolls, where virtually all of the job gains were in government, education, and health. U.S. private-sector employment excluding government, health and education rose by only 24,000, which was well below market estimates.

Bottom line: We are starting to see signs of a slowdown in private-sector job creation in both the U.S. and Canada even before the shocks from the European fiscal and currency crisis have rippled fully through the North American economic zone. This suggests that the risks to the outlook over the next few months have taken a quantum leap upwards.

The Bank of Canada's cautionary statement—"given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against the domestic and global economic developments"—is an apt description of the challenges that lay ahead.

In view of these developments, the Bank of Canada is expected to remain on hold for the time being, and the Federal Reserve is not expected to change its very accommodative stance on monetary policy for quite some time.