Data released on Friday, June 7, shows that Canada’s unemployment rate edged up to a more than two-year high in May, with wage growth accelerating, giving two diverging signals for the Bank of Canada’s next rate decision in July.
Employers across the country added 26,700 jobs in May, pushing the unemployment rate 0.1 percentage point higher to 6.2%, the highest since January 2022, according to Statistics Canada. This hiring pace was slightly stronger than market expectations of 22,500 jobs but follows a substantial 90,400 increase in employment the previous month.
May’s hiring consisted entirely of part-time positions. Using U.S. Labor Department methodology, Canada’s unemployment rate also inched up 0.1 point to 5.2%. Meanwhile, U.S. job creation surpassed expectations even as the jobless rate ticked up to 4%, presenting a mixed view of the American labor market.
In Canada, the unemployment rate has trended higher for over a year, rising 1.1 percentage points since April 2023, despite continued job growth. In May, Canada added 402,300 jobs compared to a year earlier. However, this job growth has been outpaced by immigration-driven population growth, with nearly 100,000 people added to the population in May alone. The employment rate, representing the working-age population that is employed, eased 0.1 point from April to 61.3%.
There were roughly 1.4 million unemployed in the country last month, a 2.1% increase from April. This rise included an increase in long-term unemployment (27 weeks or more) and a decline in the proportion of people finding jobs in May compared to pre-pandemic levels, suggesting Canadians are finding it harder to secure work.
The overall soft job data suggests a low threshold for the Bank of Canada to consider further loosening monetary policy, following its recent decision to lower its policy interest rate. However, the re-acceleration in wage growth will likely catch policymakers’ attention.
Canada’s consumer price index eased to 2.7% in April, the slowest pace in three years, and economic growth in the first quarter was more sluggish than expected. Despite this, earnings continue to outpace headline inflation, with average hourly wages for permanent employees rising 5.2% in May from a year earlier, surpassing the 4.7% growth economists anticipated. This re-acceleration follows recent signs, including separate payroll data, that wage growth was cooling.
