Canada Labour Force Survey (May 2026)

Strengthening in labour market increases chance of rate hikes this year

The strong rebound in employment and the fall in the unemployment rate to 6.6% will provide some relief to the Bank of Canada that the economy is not in or on the verge of recession. While wage growth slowed, the strength in the labour market presents a risk to our view that the Bank of Canada will keep rates on hold this year.

The 87,800 rise in employment in May was much stronger than even our above-consensus forecast for a 30,000 rise. The increase was entirely driven by a 154,000 surge in full-time employment, while the number of part time workers fell by 66,200. The number of workers aged 15-24 increased by 22,000, suggesting that it was a stronger-than-usual start to the summer hiring drive. But the bulk of the rise was driven by the 25+ cohort, showing the strength was broad-based. At the sector level, the largest increases were in construction (+26,800), information, culture & recreation (+19,300) and transportation & warehousing (+18,700). The biggest surprise was the 8,2,00 fall in public administration employment, given that this sector should have benefited from the hiring of temporary workers to conduct the 2026 Census.

The big rise in employment more than outpaced the 3,800 rise in the labour force, causing the unemployment rate to fall to 6.6% from 6.9% in April. But with the participation rate unchanged and still well below its long-run average, there is still a risk that the unemployment rate rises again. Meanwhile, wage growth slowed sharply, with average hourly earnings growth of employees plunging to 3.0% y/y from 4.5% y/y in April, which will be some comfort to the Bank of Canada as it considers the risk that higher oil prices could trigger second-round inflation risks.

We will update the linked webpage with additional analysis during the next hour.