Data Flash: Canadian labour market data bounced back in May
The Canadian labour market exhibited a robust recovery in May, with an employment increase of 88,000 and a decline in the unemployment rate to 6.6%, according to RBC Economics. This uptick provides a welcome contrast to recent soft GDP data, suggesting resilience in the Canadian economy despite potential challenges ahead. Per the full note, the substantial rise in full-time positions (up 154k) underscores positive underlying trends, even as the retail sector struggles. With trade uncertainties and rising energy prices lurking as headwinds, the desk believes sustained improvements in labour conditions could signal gradual economic stabilization as 2026 progresses.
What the desk is arguing
The desk posits that the bounce-back in Canadian employment is indicative of strengthening labor market conditions. Per the full note from RBC, the 88,000 jobs added in May comes on the heels of a disappointing GDP report, raising questions about economic growth but simultaneously showcasing the resilience in job creation.
Supporting this thesis is the notable rise in full-time jobs, as well as the recent decrease in the unemployment rate from 6.9% to 6.6%, reflecting ongoing improvements in worker conditions since a peak of 7.1% in mid-2025. However, it is important to remain guarded as this is still only the second employment increase in five months, and the broader economic environment presents significant hurdles.
Where it sits in our coverage
While our consensus target for USD/CAD is 1.075 with a range between 1.04 and 1.12, firms are divided in their perspectives: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The optimistic view from the desk aligns with jpmorgan, which sees a stronger outlook for USD/CAD, although it remains at the upper bound of existing expectations. Conversely, bofa maintains a more cautious stance, presenting a significantly lower target.
How other firms see it
Opinions are split among major analysts regarding Canadian economic strength. Aligned with the desk's view, firms like jpmorgan and citi advocate for a bullish stance on the Canadian dollar due to the labor market's recent resilience. On the opposing side, bofa holds a more pessimistic outlook, signaling ongoing concerns about broader economic stability.
This divergence in views might play a crucial role in the USD/CAD trajectory, particularly as market participants monitor the potential impact of upcoming trade negotiations and domestic economic indicators, such as retail sales and inflation data.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Canadian employment increased by 88,000 in May, signaling a rebound in the labor market.
- 02The unemployment rate dropped to 6.6%, down from 6.9%, reflecting improving worker conditions.
- 03Despite the positive employment revisions, trade uncertainties and high energy prices pose risks to growth.
- 04The desk remains cautiously optimistic for continued gradual improvement in economic resilience throughout 2026.
Market implications
Watch for USD/CAD movements around the 1.075 target as market sentiment fluctuates post-labor data. Additionally, the outcome of trade negotiations could significantly influence exchange rates and economic expectations.
Risks to this view
Should trade negotiations falter or household purchasing power decline further due to rising energy costs, the optimistic employment outlook may be undermined, potentially reversing the current positive sentiment.
RBC Royal Bank View Online Canadian labour market data bounced back in May The Bottom Line: The larger-than-expected increase in employment (88k) and drop in the unemployment rate (to 6.6% from 6.9%) 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. The jump in employment in Canada in May was still just the second increase in the last five months, and still left the employment count down slightly year-to-date in 2026. But we have argued before that a sharp slowing in population growth is distorting the comparison of employment growth relative to historical comparisons - ~26k workers retired per month over the last year, and caps on temporary resident arrivals are reducing the supply of workers available 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. Looking ahead, the economic growth backdrop still faces headwinds. Trade uncertainty remains ahead of negotiations to extend CUSMA this summer, and higher energy prices are cutting into household purchasing power.
But 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. The Details: - Employment jumped 88k in May following an 18k decline in April, with broadly positive underlying details. - Full time employment jumped by 154k with offset from a 66k drop in part-time positions. - On an industry basis, retail and wholesale employment fell by 35k (a fourth straight monthly decline) but the heavily trade sensitive manufacturing sector posted a 15k increase and construction employment bounced back 27k after falling 16k in April. - Public administration employment fell by 8k despite census hiring that usually shows up in May of census years. From separately-reported data, that hiring typically adds ~15k paid positions in May of census years. - The unemployment rate fell to 6.6% from the 6.9% rate in April -- still slightly above the recent low 6.5% rate in January but below the 7.1% peak levels in 2025 and down 0.4 ppts from a year ago.
The labour force participation rate was unchanged at 65.0%. - Critically layoffs continued to decline -- this has been a persistent feature of the Canadian labour force in recent months, even when unemployment rates have increased it has been largely due to longer job searches for new labour market entrants rather than layoffs. - And there were some early signs of relief for hard-hit youth labour markets -- the unemployment rate for 15-24 year olds is still high but fell to 13.4% in May from 14.3% in April in what is the first month of the typical student summer jobs market. - Hours worked jumped 0.6% in May -- consistent with a pickup in GDP growth after the surprisingly weak Q1 GDP report. - Regionally, employment gains in May were broad-based across provinces. Ontario led with a 42,000 increase, marking the second consecutive monthly advance and bringing year-to-date cumulative gains to 15,000. The province's unemployment rate declined 0.5 percentage points to 7.0%-the lowest since September 2024.
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