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A worker unloads a delivery of 200,000 masks at a Vancouver city depot, on June 3, 2020.JONATHAN HAYWARD/The Canadian Press

Canada and the United States posted surprise gains in employment for May, a sign the North American economy is beginning to heal from the COVID-19 pandemic.

In Canada, the number of employed people rose by 289,600 last month as provinces began to reopen their economies, Statistics Canada said Friday, or strikingly better than a loss of 500,000 that economists had expected. The unemployment rate climbed to a record high of 13.7 per cent as more people rejoined the labour market in search of work.

The U.S. notched an increase of 2.5 million jobs in May, far different from the median estimate of another 7.5 million positions lost to pandemic shutdowns. The jobless rate fell to 13.3 per cent, the second highest on record, from April’s 14.7 per cent.

North American markets rallied sharply on the reports, with the S&P/TSX Composite Index finishing the Friday session up 2.1 per cent and the S&P 500 up 2.6 per cent. Bond prices fell and yields climbed on expectations of a firmer economy ahead.

Canada’s results “suggest the recession lasted just two months, March and April, and that the recovery has begun,” Douglas Porter, chief economist at Bank of Montreal, said in a phone interview. “I have to say, the initial signs are mildly encouraging. It’s a long road ahead, though.”

Indeed, with May’s increases, Canada has recouped just less than 10 per cent of a combined three million jobs lost in March and April, while the U.S. has recovered 11.4 per cent of 22 million positions lost during those months.

Over all, there are still close to five million Canadians who either lost their jobs or the majority of their work hours because of the pandemic.

“Just looking at the headline [employment] number doesn’t tell you that everything is right with the world, and that the economy is snapping back,” Frances Donald, chief economist at Manulife Investment Management told The Globe and Mail. “This is not a picture of a healthy economy. This is a picture of a lot of underlying suffering and economic challenges ahead.”

The Canadian job market was jolted on several fronts. Nearly 80 per cent of May’s increase was registered in Quebec, which saw a net gain of 231,000 workers. The province allowed the construction industry to return in mid-April and other restrictions began to ease outside the Montreal area in early May.

Employment in the goods-producing sector jumped 5 per cent (164,700) last month, or stronger than the services sector’s 1-per-cent gain (124,900). Most industries added jobs in May, paced by wholesale and retail trade (107,000), manufacturing (79,100) and construction (73,700).

Workers were getting more hours, too. The total number of hours worked in all industries climbed 6.3 per cent in May, after a plunge of nearly 28 per cent between February and April.

Going into Friday’s reports, it was widely assumed that Canada and the U.S. would experience another month of crushing losses.

For Canada, this estimate was partly the result of timing. Statscan surveyed households on their work status between May 10 and 16, or before some reopening stages had taken effect. Meanwhile, nearly two million Americans filed new claims for state unemployment benefits in the final week of May, pointing to continuing labour woes.

Instead, companies started adding to staff levels and doling out more shifts during the initial weeks that some provinces and states eased lockdowns.

“I can’t help but wonder if a lot of the major forecasters are being a little bit negative because they’re surrounded by some of the toughest challenges with the virus and some of the more intense shutdowns,” said Mr. Porter, adding many private-sector forecasters are based in Toronto and New York.

Despite May’s rebound, the reports revealed pockets of weakness and challenges for the coming months.

Ontario was the only province where employment declined last month, although losses were less severe than in March and April. The first stage of the province’s reopening plan took effect after the Victoria Day weekend.

For women, the ranks of the employed rose 1.1 per cent (83,600 people), or weaker than the 2.4-per-cent gain for men (206,100 people), because women have higher representation in service industries that are slower to come back. Statscan also noted that among parents, women registered fewer job gains than men and were more likely to lose hours.

“We need to get rid of the idea that the recovery is going to be even,” Ms. Donald of Manulife said.

Further, there were 1.4 million people who were not in the labour force – that is, they weren’t working or looking for a job – but wanted work. That was down from April, but still significantly higher than before the pandemic, highlighting the extent to which discouraged workers will need to be coaxed back into the labour market over time.

As lockdown restrictions ease further, June is shaping up as a blowout month for job gains.

“However, these might simply represent the low-hanging fruit of employees being called back to companies that were able to survive the period of shutdowns,” Royce Mendes, senior economist at Canadian Imperial Bank of Commerce, said in a note to clients.

“Many businesses have closed or will be operating at severely reduced capacity and, therefore, some workers won’t be called back. That residual unemployment, which could be significant, will likely take a long time to work down.”

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