For the third straight month, Canada’s unemployment rate has increased as the U.S. trade war develops and many businesses continue to face economic challenges from tariffs, with the manufacturing sector in particular getting hit the hardest.
Although Statistics Canada says the employment landscape was “little changed” overall in its report on Friday, the unemployment rate increased slightly to 7.0 per cent in May from 6.9 per cent in April.
Outside of the pandemic years, the unemployment rate Canada hasn’t been that high since 2016, and Statistics Canada also says that since January of this year there has been “virtually no job growth” overall.
“The persistent rise in the jobless rate is a loud warning bell,” says chief economist Doug Porter at the Bank of Montreal.
“Slack is still growing in the labour market, suggesting that the Bank of Canada may not be done cutting rates just yet.”
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U.S. President Donald Trump’s tariff policies are expected by many economists to lead to a recession this year, in addition to thousands of jobs lost from the labour market.
“The bite from the trade war has been more apparent in specific regions that are highly integrated with U.S. trade,” says senior economist Brendon Bernard at Indeed Canada.
“These areas will need the trade tensions to ease for a rebound.”
One of the main work sectors that has been impacted by tariffs is manufacturing, and the report from Statistics Canada shows in May an additional 12,500 manufacturing jobs were shed following the loss of over 30,000 in in April. The province of Ontario, which has a high concentration of manufacturing jobs, saw its unemployment rate rise nearly a full percentage point above the national average last month at 7.9 per cent.
The labour force added a net 8,800 jobs in May, and that represents the final number of new jobs added compared with the total number of jobs shed.
Another 32,000 jobs were lost in public administration, which mostly reflected the expiring of temporary employment contracts after the April election. The private sector got a bit of a boost overall with over 60,000 jobs added, and in the month, and there was a combined nearly 58,000 full-time positions added in the private and public sectors combined.
“The gains in private-sector and full-time jobs are encouraging,” says Porter, adding: “But, standing back, the bigger picture is that the manufacturing sector is under intense strain amid the deep trade uncertainty, and the overall job market continues to soften.”
On Wednesday, the Bank of Canada held its overnight interest rate at 2.75 per cent, and Governor Tiff Macklem suggested that ahead of the central bank’s next rate decision on July 30 it will be “looking carefully” at economic data including this labour market report.
“While May’s mixed report doesn’t give a clear (interest rate) cut signal to the Bank of Canada, the bigger trend of a rising jobless rate will keep them very much in easing mode through the second half of the year,” says Porter.
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