Canada’s surprise jobs surge masks persistent labour market weakness as trade losses linger Proactive uses images sourced from Shutterstock
Canada’s labour market surged in May, with the economy adding 87,800 jobs and the unemployment rate falling to 6.6%, well above analyst expectations and marking the strongest monthly performance since late 2024, according to Bank of America’s reading of Statistics Canada’s latest Labour Force Survey.
The result far exceeded consensus forecasts of 10,000 net new positions, and BofA’s own estimate of 7,000.
The unemployment rate dropped 0.3 percentage points from the six-month high of 6.9% reached in April, also beating expectations for it to hold steady. The employment rate rose 0.2 percentage points to 60.7%.
The gain was driven entirely by full-time employment, which rose by 154,000 in the month, while part-time positions fell 66,200. Private sector hiring led the way, adding 56,300 jobs compared with just 2,600 in April, followed by public sector growth of 20,400 and self-employment of 11,200.
Job creation was broad-based across both goods-producing and services sectors. Construction was the standout performer within goods, adding 26,800 positions, while manufacturing contributed 14,700. On the services side, information, culture, and recreation added 19,300 jobs, though wholesale and retail trade shed 35,000 positions, extending the sector’s year-to-date net loss to 64,000 amid ongoing USMCA review uncertainty.
Despite the strong headline print, some softness persists. Net job losses year-to-date remain at 24,500, and manufacturing continues to carry a year-to-date deficit of 21,000 positions.
Wage growth slowed sharply, with hourly earnings rising 3% year-over-year in May, down from 4.5% in April. Labour force participation held steady at 65%, suggesting the drop in unemployment was driven by stronger hiring rather than workers exiting the workforce.
BofA noted that FIFA World Cup preparations are already boosting payrolls in both Canada and the United States, but cautioned that the unemployment rate could face upward pressure once the tournament ends.
On monetary policy, BofA maintained its call for the Bank of Canada to hold its benchmark rate at 2.25% through the remainder of 2026. The bank has already held rates steady across four consecutive decisions.
Analysts said a single strong jobs print is unlikely to shift the central bank’s stance. “We would need to see multiple strong labor market prints to signal a permanent recovery, as net job losses ytd persist, keeping the bar for hikes high,” they wrote.
Risks to the outlook remain two-sided: persistently high inflation or Federal Reserve tightening could prompt a hike, while further deterioration in US trade policy could weigh on activity, leaving the Bank’s path highly data dependent.