Following the release, bond yields rose slightly as investors scaled back expectations of a July rate cut from the Bank of Canada.

Employment rose by just 8,800 in May, according to Statistics Canada’s latest labour force survey, as a gain of 58,000 full-time jobs was mostly offset by the loss of 49,000 part-time positions. Meanwhile, the unemployment rate ticked up 0.1 percentage points to 7%.

Economists had widely expected job losses in May, but while employment stayed slightly positive, the rise in the unemployment rate came as no surprise.

The unemployment rate is now at its highest level since 2016—excluding the pandemic years of 2020 and 2021—having climbed 0.4 percentage points since February.

May’s modest job gains were driven by a 43,000 increase in wholesale and retail trade positions. The finance, insurance, real estate and rental and leasing sector also added 12,000 jobs, contributing to the overall uptick.

In contrast with last month’s report, public administration employment declined by 32k with the temporary election positions no longer needed. Accommodation and food services, transportation and warehousing all saw drops of 16k with manufacturing shedding 12k jobs.

The employment rate held steady at 60.8%, matching a recent low recorded in October.

Across the board, there has been “virtually no employment growth since January,” Canada’s statistical agency stated in the report.

“Canada’s labour market continued to soften in May,” TD’s Leslie Preston wrote in a research note. “The unemployment rate continued to rise, and the impact of U.S. tariffs is clearly evident in industry and regional patterns.”

Average hourly wages rose 3.4% year-over-year in May, matching April’s pace of growth.

South of the border, employment numbers were released in the U.S. this morning, pointing to a slight increase as well. Total nonfarm payroll employment grew by 139k, slightly above economists’ consensus forecast of +125k, and the unemployment rate remained unchanged at 4.2%.

“Nothing in the (U.S.) May employment report will push the Fed off the sidelines earlier than the markets currently expect,” noted BMO’s Scott Anderson. “The steady unemployment rate and improvement in the three-month average of monthly job gains will keep the Fed firmly in the wait-and-see camp.”

Weakening employment trend still points to future rate cuts, economists say

With the unemployment rate continuing to rise, tariff pressures growing, and jobs being virtually unchanged so far in 2025, Canada’s job market is showing signs of weakness—signs that could lead the Bank of Canada to cut rates further later this year.

BMO’s Douglas Porter sees cracks in the manufacturing sector and the rising unemployment rate as early signs that tariff pressures are starting to take a toll.

“The bigger picture is that the manufacturing sector is under intense strain amid the deep trade uncertainty, and the overall job market continues to soften—highlighted by the grinding rise in the unemployment rate,” he wrote.

Following this morning’s data, economists say the Bank of Canada will likely view it as one piece of the broader rate-cut puzzle, with some confident the Bank will resume easing rates later this year.

“While May’s mixed report doesn’t give a clear-cut signal to the BoC, we believe that the bigger trend of a rising jobless rate will keep them very much in easing mode through the second half of the year,” Porter said.

CIBC’s Andrew Grantham echoed that view, noting that joblessness is likely to keep rising through the rest of the year. He says improving trade conditions and additional rate cuts will be needed to turn the tide.

“We expect that the gradual rise in joblessness will continue into the second half of the year, with positive developments regarding U.S. tariffs and some further interest rate cuts from the Bank of Canada required to help stabilize conditions before year-end and bring a reduction in the unemployment rate again in 2026,” he wrote.

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Last modified: June 7, 2025