OTTAWA — Some economists say Canada's labour market is weakening but not collapsing as Statistics Canada reports job growth has stalled since the start of the year.
Canada’s jobless rate rose a tenth of a point to seven per cent in May amid a gain of 8,800 jobs in the month, StatCan said Friday.
That’s up from 6.6 per cent at the start of the year and marks the highest unemployment rate since 2016 outside the pandemic years, the agency said.
“Overall, there has been virtually no employment growth since January,” StatCan said in the release. That comes after gains of 211,000 net jobs from October through January.
RBC senior economist Claire Fan said the Canadian labour market was in "recovery mode" late last year as interest rate cuts started to generate momentum in the economy.
But that was before the "headwinds" of Canada's trade conflict with the United States whipped up, she said.
Job gains last month were concentrated in full-time work and were led by a rebound in the wholesale and retail trade sectors, which faced losses in April and March.
Offsetting the growth was a contraction in public administration, mostly undoing a one-time boost in hiring tied to the federal election in April.
BMO chief economist Doug Porter said in a note to clients Friday that this jobs report gets a "passing grade" because of the full-time and private sector gains.
But he said the latest labour force survey shows the U.S. trade dispute is putting "intense strain" on some parts of the economy.
The manufacturing sector, which was hard-hit in April, shed some 12,200 jobs in May. The transportation and warehousing industry also saw losses.
StatCan said cities in southwestern Ontario’s manufacturing corridor are particularly facing an “uncertain economic climate” as automakers contend with tariffs on motor vehicles and parts.
Friday's labour force survey showed population growth notched its slowest pace since 2021, Fan said. That's also putting a drag on overall employment growth but helps to bring supply and demand "more into balance" in the labour market, she said.
Porter noted the current jobs market is very different from the situation two to three years ago, when it was hard for businesses to find workers — it's now harder for workers to find work.
StatCan data showed unemployed people had spent an average of 21.8 weeks looking for a job in May, up from 18.4 weeks for the same month a year earlier.
Fan noted that only 12 per cent of the increase in total unemployment from last year is connected to people losing their jobs — the bulk of the rise is coming from new entrants to the labour force.
"What we're seeing right now is a broad-based slowing in terms of hiring demand, but it's impacting very specific pockets in terms of both demographic and industry," she said.
The challenge is particularly pronounced in the summer jobs market for students.
Roughly one in five returning students aged 15 to 24 – those heading back to school in the fall – were unemployed in May, the agency said.
StatCan said the jobless rate for this group has trended up annually each May since 2022, when just over one in 10 returning students were unemployed in a relatively tight labour market.
The last time the jobless rate for students was about this high was May 2009, outside the pandemic years.
"Whenever we do see a softening in the jobs market … it's usually the case that younger workers, new graduates into the labour force are the ones that are disproportionately impacted," Fan said.
The Bank of Canada held its benchmark interest rate steady for the second time in a row on Wednesday and said it needed more information on how trade disruptions are impacting the economy and inflation. Its next decision is set for July 30.
The May jobs result was better than expectations from a poll of economists provided by LSEG Data & Analytics heading into the release, which called for a loss of 12,500 jobs.
Financial markets data shows bets for a quarter-point cut at the July meeting pared back to roughly 28 per cent as of early Friday afternoon.
But Porter said the "persistent rise in the jobless rate is a loud warning bell" for the central bank.
"The main point is that slack is still growing in the labour market, suggesting that the Bank of Canada may not be done cutting rates just yet."
TD senior economist Leslie Preston said in a note to clients that the Canadian labour market was "basically treading water" in May.
"May's jobs report puts another mark in the economic weakness tally. We think this will ultimately lead to further rate cuts from the Bank of Canada," Preston said.
The Bank of Canada will get a look at two months of inflation data and another jobs report before its next meeting.
This report by The Canadian Press was first published June 6, 2025.
Craig Lord, The Canadian Press
