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What does a 7.4-per-cent jobless rate tell us about the health of Canada's labour market?

For one, it shows modest monthly job gains are helping to whittle down the unemployment rate, which now stands at the lowest in more than two years.

By contrast, that rate was 8.1 per cent a year ago, and peaked at 8.7 per cent during the recession. There's no question conditions have improved for job seekers over the past year. Older workers, particularly women, have benefited most from employment gains.

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But that's not the whole story. May's drop in the jobless rate, from 7.6 per cent a month earlier, stemmed more from people giving up looking for work than from any job growth, Statistics Canada says. All told, 27,800 people stopped looking for work.

In an otherwise fairly solid report, "the only negative...was the decline in the participation rate, which may be showing that some unemployed are getting discouraged," points out Charles St-Arnaud, Canadian economist at Nomura Securities International in New York.

The participation rate ebbed to 66.8 per cent in May and is lower now than a year ago. Some people might be taking a break from job searches as the weather warms up, others may have headed back to school. And some have given up because they simply can't find work.

While the economy has added several hundred thousand jobs over the past year, 1.37 million Canadians are still out of work.

Why does any of this matter? Low participation rates can signal slower consumption, because they suggest more people are seeing an earnings loss. And, with a strong dollar curbing exports and interest rates set to rise, that could be one more drag for the Canadian economy.

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