Canada's unemployment rate fell to 6.6 per cent in May as 88,000 positions were added to the economy, marking the first significant employment gain since November 2025, according to Statistics Canada's labour force survey data released Friday. The report has prompted economists to weigh in on what it means for the Bank of Canada's future interest rate decisions.
Ends Recession Debate
The latest jobs numbers effectively end the recession debate, said David-Alexandre Brassard, chief economist at Chartered Professional Accountants of Canada. The May report significantly beat expectations, bringing employment close to flat for 2026. The scale of job creation, particularly in full-time roles, points to improving economic conditions rather than a downturn.
"This is a blockbuster report that seemingly wipes away recession fears and points to a rebound in the second quarter following two quarters of contraction," said Brassard, noting that the gains were broad-based, driven by sectors outside the public sector and industries impacted by tariffs.
He also noted that the report shows easing wage pressure, as a surge of new jobs helps slow wage growth caused by earlier labour market tightness. "That resilience comes as Canada looks ahead to the renewal of CUSMA," he said. "We're in a stronger position heading into these discussions, which is extremely important given ongoing global trade pressures."
BoC to Stay on Sidelines Next Week
Andrew Hencic, director and senior economist at TD Economics, said the unemployment rate tumbling in May handily beat consensus expectations for a 10,000 gain, as employment gains outpaced labour supply. The labour force was little changed at 3,800, leaving the participation rate unchanged at 65 per cent.
"No bones about it, this is a solid report," said Hencic. "However, this basically brings employment back to where it was in January, with an unemployment rate 0.1 percentage points higher."
He said there continues to be a lot of noise in Canadian economic data, including the disappointing surprise contraction in first quarter GDP. But with April's flash GDP estimate signalling a 0.4 per cent monthly gain and now May's labour force report, he continues to expect a second quarter bounce-back in activity.
He added that the economy is nonetheless operating below capacity, providing a disinflationary offset to the energy price shock. With this backdrop, he expects the Bank of Canada to stay on the sidelines next week and keep its policy rate at 2.25 per cent.
The "unambiguously strong [jobs] report" should somewhat ease Bank of Canada worries about the economy after the negative GDP print, said BMO's Benjamin Reitzes. However, beyond the optimistic headlines, some economists argue that the Canadian economy is barely scraping by, with underlying weaknesses persisting despite the strong headline numbers.
