Canada Adds 27,000 Jobs in May, but Unemployment Rate Rises to 6.2% Amid Economic Uncertainty

Canada saw a surprising shift in its labor market in May, adding 27,000 jobs while the unemployment rate ticked up to 6.2%, according to the latest figures from Statistics Canada.

Unemployment Rate

Canada saw a surprising shift in its labor market in May, adding 27,000 jobs while the unemployment rate ticked up to 6.2%, according to the latest figures from Statistics Canada. Despite the job gains, the rise in unemployment highlights ongoing economic challenges and leaves economists speculating about future interest rate cuts by the Bank of Canada.

Mixed Job Market Signals

The increase in employment was driven by a surge in part-time jobs, which rose by 62,000. However, this was offset by a decline in full-time employment, which fell by 36,000. The number of Canadians working part-time due to the lack of full-time opportunities also increased to 18.2% in May, up from 15.4% a year ago.

“There is plenty in May’s jobs data that supports the case for lower interest rates,” noted Leslie Preston, senior economist at Toronto-Dominion Bank. “The economy has cooled, but it has not fallen off a cliff. We expect a gradual pace of interest rate reductions this year, with the Bank of Canada likely to cut at every other meeting.”

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Bank of Canada’s Dilemma

The Bank of Canada recently cut interest rates for the first time since it began a rate-hiking cycle four years ago, aiming to bring inflation towards its target of 2%. Economists are now divided on whether the central bank will make another cut in July.

Douglas Porter, chief economist at the Bank of Montreal, expressed caution, stating that while the labor force survey indicates growing slack in the economy, the Bank of Canada’s decision will heavily depend on upcoming inflation reports.

Unemployment and Employment Trends

In May, the number of unemployed Canadians rose by 28,000, reaching 1.4 million. About a quarter of the unemployed in April found jobs in May, a figure below the pre-pandemic average, indicating increasing difficulties in finding work. Long-term unemployment also saw a rise, with 18.2% of the unemployed jobless for 27 weeks or more, up from 13.2% in August 2023.

The employment rate, representing the proportion of the population over 15 years old who are employed, fell by 0.1% to 61.3% in May. This marks the seventh decline in the past eight months, with employment growth failing to keep pace with population growth.

Sector-Specific Changes

Health care and social assistance sectors saw significant job growth, adding 30,000 positions in May and 170,000 over the past year. Conversely, the construction sector lost 30,000 jobs in May and has seen a decline of 35,000 jobs, or 2.2%, over the past year.

The trend of remote work also saw a decline, with only 13.2% of employed Canadians working exclusively from home in May, down 5.5 percentage points from May 2022 and 1.2 percentage points from last year.

Wages and Economic Outlook

Average hourly wages increased by 5.1% compared to last year, reaching $34.94 in May. This rise in wages is another factor the Bank of Canada will consider as it weighs further interest rate cuts.

Overall, the latest labor force survey points to a cooling job market, suggesting room for potential interest rate cuts. However, the central bank will be closely monitoring inflation and wage trends before making its next move in July.

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