Will the central bank step in?
Canada’s job market stumbled in April, and economists are increasingly convinced that the Bank of Canada will begin cutting interest rates next month to ease the economic strain brought on by tariffs and slowing demand.
According to Statistics Canada, the unemployment rate rose to 6.9% in April, up from 6.7% in March, surpassing expectations. The economy created just 7,400 new jobs, barely offsetting March’s loss of 32,600 positions. Analysts say hiring for the April federal election masked deeper weakness, as core industries reported significant declines.
“Scratch beneath the surface and Canada’s labor market continued to soften,” said Leslie Preston, managing director and senior economist at TD Economics, in a note to Financial Post. She highlighted that job growth has averaged negative over the past three months, with hourly wage gains also slowing—rising 3.4% year-over-year in April, compared with 3.6% in March.
Will a rate cut offer relief?
A major source of the labor pain, economists say, is the renewed imposition of US tariffs, which have hit Canada’s manufacturing and trade sectors hard. In April, manufacturing employment dropped by 31,000, while wholesale and retail trade lost a combined 27,000 jobs.
TD Economics expects the Bank of Canada to respond with a 25 basis point rate cut at its June 4 meeting, citing mounting evidence of a broader economic slowdown.
Tu Nguyen, an economist with RSM Canada, said April’s report highlights the “sheer impact” of the tariffs and the “stark” divide between goods- and services-producing sectors. While the manufacturing and trade sectors together lost 58,000 jobs, the services sector gained 40,300.
Nguyen warned that continued losses in goods-producing industries could soon lift the jobless rate above 7% for the first time in over a decade, excluding the pandemic period. “It will be a particularly challenging summer for new graduates to land jobs,” she said.
Still, she pointed to a glimmer of resilience in Canada’s trade diversification efforts. Exports to countries outside the US surged 24.8% in March—marking the largest recorded increase.
Stephen Brown, deputy chief North America economist at Capital Economics, said much of April’s weakness stemmed from the manufacturing sector, which he linked to plant pauses at Stellantis NV and other firms responding to the new tariffs. Stellantis, the maker of Jeep, Ram and Dodge vehicles, halted production at facilities in Canada and Mexico earlier this spring.
While Brown suggested some of those losses could be reversed, he warned that the offsetting job growth—driven by temporary public-sector hiring during the election—is unlikely to last. “Most of the offset … will almost certainly be fully reversed in the May Labour Force Survey,” he said.
Capital Economics predicts that the central bank will begin trimming its policy rate in June, ultimately lowering it to 2% by the end of 2025, below the 2.5% currently priced in by markets.
Claire Fan, senior economist at Royal Bank of Canada, echoed those concerns. “Most of the decline outside of public administration can be traced back to manufacturing,” she said, pointing to three consecutive months of job losses in the sector.
Fan added that slower population growth and weakening international trade are expected to weigh further on job creation. RBC forecasts that the Bank of Canada will cut rates to 2.25% by summer. The current policy rate stands at 2.75%.
