Economists see Bank of Canada rate cuts ahead after weak May data
Canada’s unemployment rate rose to 7% in May, its highest level since 2016 outside of the pandemic years, as job growth remained virtually flat.
Statistics Canada said on Friday just 8,800 jobs were added last month — a small gain that underscores the broader weakness in the labour market, which has seen little to no net growth since January.
The latest labour force survey paints a picture of an uneven job market. Gains in full-time work (up 58,000 positions) were nearly wiped out by a loss of 49,000 part-time jobs. The wholesale and retail trade sector led growth with 43,000 jobs added, rebounding after losses earlier in the spring. Information, culture and recreation also recorded modest gains.
However, public administration shed 32,000 jobs in May, unwinding earlier gains tied to the federal election in April. The accommodation and food services industry, as well as transportation and warehousing, also posted declines.
The manufacturing sector continued its downward slide, losing another 12,200 jobs. Statistics Canada said Southwestern Ontario cities such as Windsor, Oshawa, and Toronto are facing an “uncertain economic climate” amid tariffs on motor vehicles and parts. Windsor’s jobless rate surged to nearly 11% in May.
“Sectors that are the most exposed to trade headwinds, namely manufacturing and transport and warehousing, shed jobs,” said RBC economist Claire Fan. “The level of manufacturing employment is also at its lowest level since January 2023.”
Still, Fan said the modest overall job gain “shows resilience in the Canadian labour market amidst ongoing trade grievances,” with stronger employment in consumer-facing sectors supported by domestic spending.
Rate cuts could be ahead after weak report
The job market's weakness has broader implications for monetary policy. The Bank of Canada held its benchmark interest rate steady this week, but economists suggest more cuts could be coming.
“May’s jobs report puts another mark in the economic weakness tally,” wrote TD senior economist Leslie Preston. “We think this will ultimately lead to further rate cuts from the Bank of Canada.”
“The main point is that slack is still growing in the labour market,” said BMO chief economist Doug Porter, “suggesting that the Bank of Canada may not be done cutting rates just yet.” CIBC’s Andrew Grantham also anticipates a return to cuts in July, citing a gradual buildup of slack.
Average hourly wages rose 3.4% in May, matching April’s pace, but Canadians are taking longer to find work — with the average duration of unemployment now at 21.8 weeks, up from 18.4 a year ago.
Statscan also flagged a tough outlook for young workers. One in five returning students aged 15 to 24 was unemployed in May — the highest non-pandemic rate since 2009.
Fan expects some stabilization ahead but cautions against optimism. “We expect trade disruptions will keep acting as headwinds,” she said, “but think further deterioration will be contained with the unemployment rate peaking at levels slightly above May’s 7.0% reading.”
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