Canada reports unexpectedly strong job growth, drop in unemployment

* Job growth offsets almost all losses since start of 2026

* Unemployment rate falls to its lowest level since January

* Job gains concentrated entirely in full-time employment, StatsCan said

* Youth unemployment declined 0.9 percentage points to 13.4%

By Promit Mukherjee

OTTAWA, June 5 (Reuters) - Canada's economy added 87,800 jobs and the unemployment rate fell to 6.6% in May, data showed on Friday, defying widespread expectations of only modest employment growth and showing some resilience despite signs of softer economic growth.

The May data marked the first job growth of 2026 and helped wipe out almost 80% of all job losses posted since the start of the year. The last time the economy added a significant number of jobs was October 2025, Statistics Canada said.

Analysts polled by Reuters had forecast the unemployment rate last month would hold steady at the six-month high of 6.9% reached in April and had predicted a net gain of 10,000 jobs. For more than a year, Canada's economy has weathered an onslaught of U.S. tariffs and trade uncertainty, which has hit some crucial sectors hard and led to job losses. It has also drained hiring momentum and investments out of the broader economy.

The Canadian economy entered a technical recession - two consecutive quarters of economic contraction - at the end of the first quarter on an annualized basis. But economists have been divided on whether it was actually in recession, as there have been no widespread job losses and some sectors have shown healthy growth.

StatsCan said the construction sector added a net 26,800 jobs, the information, culture and recreation sector saw a gain of 19,300 jobs, transportation and warehousing employment grew by 18,700 jobs and accommodation and food services gained 17,000 jobs.

The wholesale and retail trade sector, which accounts for almost 14% of the total employed workforce, posted a decline of 35,000 positions.

"This is welcome news for the Canadian economy and should help to dispel the idea that the country is in recession," Jay Zhao-Murray, chief economist at macroeconomic research firm Sibley Creek, said in a note.

While there are obviously signs of weakness in other data, the jobs report is evidence that the economy still has some legs, and it should allow the Bank of Canada to remain on hold next week, he said.

GROWTH CONCENTRATED ENTIRELY IN FULL-TIME JOBS

Economists have said that the upcoming FIFA World Cup soccer tournament, which is being partly hosted by Canada, will also likely boost jobs in the months of June and July across some sectors.

The job growth last month was concentrated entirely in full-time jobs, which saw a net addition of 154,000 in May, reversing almost all of the first four months of net job losses in that category, StatsCan said. Part-time employment fell by 66,200 positions.

Average hourly wages of permanent employees, a metric closely tracked by the Bank of Canada to gauge inflation expectations, grew 3.2% in May, a sharp decline from 4.8% in April.

The unemployment rate for youth declined 0.9 percentage points to 13.4%, the first decline since January, StatsCan said. The Canadian dollar was trading up 0.12% to C$1.3889 against the U.S. dollar, or 72.00 U.S. cents, after the release of the data. Yields on two-year government bonds sharply reversed, rising 9.5 basis points to 2.762%. Bets for an interest rate hike in December firmed, with markets pricing in one 25-basis-point increase in December. (Reporting by Promit Mukherjee; Editing by Dale Smith and Paul Simao)