Unemployment ticked upwards despite the economy avoiding a net jobs loss
Canada added 8,800 jobs in May—defying expectations of a net loss—but the unemployment rate still climbed to 7%, presenting policymakers with conflicting signals ahead of critical decisions on interest rates.
Economists had forecast a decline of 10,000 jobs for the month, according to a survey of analysts.
Instead, employment edged up, led by private-sector hiring, which rose by 61,000—marking the first increase since January. Gains were concentrated in wholesale and retail trade, which analysts attributed in part to seasonal trends and domestic demand.
Despite the job gains, data released by Statistics Canada on Friday showed a labor market under strain. The number of unemployed individuals rose 13.8% compared to May 2023. The duration of unemployment increased to an average of 21.8 weeks, up from 18.4 weeks a year earlier.
Statistics Canada noted that more people who were unemployed in April remained without work in May, citing increased difficulty in finding jobs.
Economists viewed the data as sending mixed messages to the Bank of Canada, which has recently emphasized a data-dependent approach to interest rate policy.
Doug Porter, chief economist at BMO Capital Markets, described the continued rise in unemployment as a “loud warning bell.” He said the labour market has shifted over the last two years—from worker shortages to job scarcity.
Porter said that gains in full-time employment and the private sector were notable, but added that sectors such as manufacturing remain under pressure, partly due to trade-related challenges.
Bradley Saunders, North America economist at Capital Economics, also noted contrasting signals. While job growth exceeded expectations, he said recent data suggests the labour market remains weak. He cited job losses in manufacturing, transportation, and warehousing, following earlier hiring activity tied to tariff front-loading.
Royce Mendes, managing director and head of macro strategy at Desjardins Capital Markets, said the 7% unemployment rate crosses a “key threshold,” despite job creation. He pointed to increased unemployment in Ontario and suggested that new labour force entrants may also be contributing to the higher jobless rate.
Desjardins expects second-quarter GDP growth to range from 0% to 0.5% and projects that the Bank of Canada will cut its key policy rate by 75 basis points by year-end, bringing it to 2%.
The Bank held rates steady earlier this week.
