Canada Employment Preview: Forecasts from five major banks, tight labour market

We look for job growth to slow to 25K in May for a deceleration from the recent trend of 57K, keeping the unemployment rate stable at 5.0%. We look for service-sector hiring to drive the headline print, alongside a rebound in full-time employment after the pullback in April. We also look for wage growth to remain elevated at 5.1%, down 0.1pp from last month.

We expect May employment in Canada to post another increase of 20K, building on the ~250K surge between January and April. But the unemployment rate is still expected to tick higher, as the amount of ‘excess’ labour demand continues to ease. Job vacancies are down almost 20% from peak levels as of March, consumer delinquencies have been edging higher, and worker quit rates have been slowing in recent months.

The job market has been extraordinarily strong recently, with headcounts expanding by 344K over the past 6 months. And while signs of an upcoming reversal remain few and far between, we think such a pace is unsustainable in the medium term. We thus expect more modest gains in the coming months, starting with a 20K result in May. Despite this improvement, and assuming that the participation rate remained unchanged at 65.6%, the unemployment rate could still increase by one-tenth to 5.1%, the result of yet another sharp expansion of the labour force. 

We expect employment to remain flat in May, with an increase in the unemployment rate to a still-low level of 5.2%. Softer employment could be partly due to wildfires in May that constrained activity. Still, we expect some declines in employment to be offset with continued strong immigration, with a higher participation rate. Hours worked will be a useful more-timely indication of how overall activity is evolving than other activity data. We expect hourly wages of permanent employees to remain strong in May with a 5.1% YoY increase. Wages, and employment data broadly, will remain an important factor to watch for risks of possibly further rate hikes beyond June.

Rapid population growth is creating a larger pool of potential workers, but cooling demand due to past interest rate hikes should see employment gains start to undershoot growth in the population. While the 20K in jobs we predict for May would have previously been considered solid, in 2023 it would be weak enough to see the unemployment rate rise a tick to 5.1%.