Canada’s unemployment rate rose in May for the first time since August 2022 as the labour market lost some of its steam.
The economy lost just over 17,000 jobs for the month, according to Statistics Canada, bringing the unemployment rate up to 5.2 per cent from the five per cent recorded in April. This fell short of Bay Street economists’ expectation of a gain of more than 21,000 jobs. It’s too soon to call it a trend, but further losses over the next few data releases could signal that Canada’s job market is finally starting to slow.
The labour market, which had been stubbornly robust after numerous job gains blew past economist expectations, is one of the factors the Bank of Canada keeps an eye on to determine whether the economy is in excess demand. The idea is that consumers are still spending on goods and services, forcing employers to increase their workforces to meet demand.
Jobs losses could indicate to the central bank that its aggressive pace of rate hikes are having their intended effect.
Statistics Canada’s Labour Force Survey for May comes just two days after the Bank of Canada hiked its key interest rate by another 25 basis points to 4.75 per cent, citing concerns about an economy and labour market that were hotter than expected in the first quarter.
Youth jobs led the losses in May as employment for those aged 15 to 24 fell by 77,000. The statistics agency said this could point to a slow start to students’ summer jobs season. The youth unemployment rate climbed to 10.7 per cent, its highest since October 2022.
There were also fewer jobs in areas such as business, building and other support services where positions dropped by 31,000, though employment increased in manufacturing by 13,000.
After repeatedly beating expectations over the past few months, the job market was seen as the last domino to fall before the economy found itself in more recessive territory.
Canadian Imperial Bank of Commerce economist Andrew Grantham said it might be too soon for this data to tell the central bank that the economy is meaningfully slowing down.
“Some cracks appeared within the Canadian labour market in May, but these may not yet be wide enough to convince the Bank of Canada that inflation is about to meaningfully cool off,” Grantham said in a note after the data came out, adding that average earnings rose by 5.1 per cent above the five per cent annual trend.
“The weak jobs figure will have markets paring back expectations for further interest rate hikes from the Bank of Canada, although policymakers will probably like to see some further softening ahead to convince them that no more rate increases are needed,” Grantham said.
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For Royce Mendes, managing director and head of macro strategy at Desjardins, it was the break in a streak of labour market gains, but he needs to see more before he reverses his call for another rate hike this summer.
“After a long string of outsized gains in job growth, hiring apparently hit a rough patch in May,” Mendes said in a note. “While this is an ugly set of jobs data, the Labour Force Survey is notoriously volatile. As a result, we’ll take this reading with a grain of salt. It would need to be corroborated with a host of additional information to change our view that the Bank of Canada will hike again in July.”