The Canadian economy unexpectedly shed jobs in May as hiring declined in manufacturing and construction, although wages rose at their strongest annual pace in nearly six years, which could give the central bank room to raise interest rates as soon as July.

Jobs declined by 7.5k in May, in contrast with market forecasts for a gain of 17.5k jobs. The unemployment rate held steady at 5.8%, as expected.

But average hourly wages rose 3.9% from a year earlier, matching a pace last seen in July 2012. The Bank of Canada has said it is closely watching income growth as it considers further interest rates increases.

The Bank of Canada laid the groundwork last week for more interest rate hikes, bolstering expectations the central bank will move as early as its next meeting in July.

Markets see 74% odds of a hike next month, which would be the bank's fourth increase in the past year. The Canadian dollar weakened against the greenback immediately after the data.

The decline in jobs was driven by a 31k drop in full-time positions, while part-time work rose by 23.6k. On a sector basis, goods-producing industries led the way down, with an 18.3k decline in manufacturing jobs and a 13k drop in construction.

The decline in construction jobs also comes as the country's once-hot housing market has cooled in recent months in response to rising interest rates and tighter mortgage rules that came into effect in January.

Indeed, separate data showed ground breaking on new homes cooled in May. The seasonally adjusted annual rate of housing starts fell to 195,613 units from a revised 216,775 units in April, the Canada Mortgage and Housing Corporation said.

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