The Canadian labour market is strong, RBC says

Royal Bank of Canada assistant chief economist Nathan Janzen noted that Canada’s labour market bounced back in May, easing some concern after a weak first-quarter GDP report.

In a June 5 report, Janzen pointed out that employment rose by a larger-than-expected 88,000 in May, while the unemployment rate fell to 6.6% from 6.9% in April.

“The larger-than-expected increase in employment and drop in the unemployment rate in May is a welcome upside labour market surprise after a surprisingly soft GDP report for Q1 last week raised concerns that the economic growth backdrop could be faltering,” Janzen said.

The gain was only the second increase in employment in five months and still left the employment count slightly lower year-to-date. But Janzen said slower population growth is distorting historical comparisons, with about 26,000 workers retiring each month over the past year and caps on temporary residents reducing the supply of workers from abroad.

“The sharp drop in the unemployment rate remains consistent with per-worker labour market conditions broadly continuing to improve since the unemployment rate peaked at a 7.1% rate in August/September of 2025,” he said.

Full-time employment rose by 154,000 in May, partly offset by a 66,000 decline in part-time jobs. Manufacturing added 15,000 positions and construction rose by 27,000, while retail and wholesale employment fell by 35,000, its fourth straight monthly decline.

Janzen said layoffs continued to decline, with recent increases in unemployment driven more by longer job searches for new labour market entrants than by job losses. Youth employment also showed some relief, with the unemployment rate for people aged 15 to 24 falling to 13.4% from 14.3%.

Hours worked rose 0.6%, which Janzen said is consistent with a pickup in GDP growth after the weak first quarter.

Employment gains were broad-based, led by Ontario at 42,000, British Columbia at 25,000, Alberta at 14,000 and Quebec at 13,000. Ontario’s unemployment rate fell to 7%, its lowest since September 2024, while Toronto’s jobless rate fell to 6.8%, its lowest since November 2023.

Wage growth was one of the softer points, with average hourly earnings growth slowing to 3% from readings above 4.5% in each of the prior two months.

Janzen said the outlook still faces headwinds from trade uncertainty ahead of CUSMA negotiations and higher energy prices, but RBC remains cautiously optimistic.

“We remain cautiously optimistic that per-person economic growth and labour market conditions will continue to gradually improve this year, with the unemployment rate edging broadly lower,” he said.

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