Solid Job Gains, But No Clear Turning Point

Employment rose by 88,000 in May (+0.4 per cent). The labour force participation rate stayed the same at 65 per cent and the unemployment rate declined to 6.6 per cent. On a year-over-year basis, average hourly wages increased by 3 per cent. Overall, this is a strong job report and shows that Canada’s labour market is adapting to global headwinds and a low population growth environment.

Key insights

May’s employment numbers are encouraging for the economy, but they are unlikely to represent a turning point for labour markets this year. Despite solid job gains in May, employment remains below December levels, and May was the only month in the past five to post significant employment growth. While the latest data are positive, uncertainty is expected to continue weighing on hiring and layoff decisions through the remainder of the year. Tariff threats also remain a source of concern, as illustrated by the recent U.S decisions to impose 10 per cent tariffs on over 60 countries over forced labour concerns. In addition, higher energy prices stemming from the Iran war are expected to weigh on both business and consumer confidence in the coming months. These headwinds only further exacerbate the impact that negative population growth is having on the labour market. As a result, we anticipate continued volatility in Canada’s labour markets.

Demographic trends are providing some temporary relief. While we do not expect meaningful employment growth this year—at least until a resolution around trade—current population dynamics will limit slow job growth while at the same time put downward pressure on the unemployment rate. Canada’s population is now contracting, as policies aimed at reducing the number of non-permanent residents are in full effect. This changing population growth story is feeding into the labour force, and the effect is expected to intensify over the coming months.