Has Canadian unemployment peaked?

Canada’s labour market has softened sharply since the start of the year, with the unemployment rate reaching 7% in May, but signs suggest the slowdown could be nearing its end.

In a recent report, RBC economists Nathan Janzen and Claire Fan noted that much of the weakness has been concentrated in industries and regions more vulnerable to global trade pressures.

“Manufacturing lost 55,000 jobs since January and the unemployment rate in parts of Southern Ontario that are manufacturing hubs are well above the national average, reaching highs not seen since the 2020 pandemic lockdowns,” they said.

The authors noted that domestic demand remains strong, reducing the risk of broader labour market weakness. Solid consumer spending is supporting job gains in service sectors, keeping overall employment growth positive.

They expect this trend to continue in June, with job losses in trade-exposed sectors like manufacturing, wholesale, and transportation likely offset by gains elsewhere, leaving total employment and the unemployment rate steady.

However, risks remain, including the looming expiry of the 90-day pause on U.S. reciprocal tariffs announced in April.

“But the most severely negative global trade scenarios still look less likely than they did a few months ago.” they said. “Crucially, we expect CUSMA exemptions to stay in place. The latest trade statistics continue to reaffirm that, for now, Canada is relatively well-positioned among U.S. trade partners to compete for its import market. The majority of Canadian goods exports were crossing the border duty-free in May, thanks to those exemptions.”

Ongoing trade tensions will keep hiring subdued, they said, but improving business confidence and a stabilization in job postings on Indeed since mid-April suggest the outlook is firming after earlier declines.

“Barring more significant negative developments on trade, we expect the bottom is near for the Canadian labour market with the unemployment rate peaking not far from where it is today.”

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