7% jobless rate, yet workforce stable
Uncertainty surrounding US trade policy is keeping Canadian businesses cautious about expansion and hiring, with ripple effects across wages, interest rates, and economic growth, the Conference Board of Canada reported.
In its latest forecast, the think tank said that while Canada’s unemployment rate rose to 7% in May, total employment remains slightly above levels recorded at the end of 2024.
BNN Bloomberg reported that the labor market has held firmer than previously projected, with job losses mainly concentrated in trade-sensitive sectors such as manufacturing and transportation.
Cory Renner, associate director of economic forecasting at the Conference Board, said that earlier expectations pointed to broader employment impacts, but the damage has been limited to specific industries. Hiring is likely to remain restrained through the rest of 2025, as businesses reconsider payroll expansions in light of trade-related uncertainty.
“The labour market’s actually holding up better than we expected,” said Renner.
The report observed that both workers and employers are avoiding significant decisions in the current environment. However, labor market conditions may tighten further as labor supply growth slows. In the first quarter of 2025, total employment outpaced labor force growth for the first time in over two years.
According to BNN Bloomberg, the federal government's efforts to curb immigration are also contributing to this shift. The Conference Board projects that employers will increasingly rely on the existing domestic labor pool, which could lead to more difficulty in filling positions over time.
As a result, the unemployment rate is expected to gradually decline to 6.2% in 2026 and 5.8% in 2027. Wage increases are forecast to remain above inflation as employers compete for a limited number of workers. Average hourly wages rose by 3.4% in May year-over-year, unchanged from April, according to Statistics Canada.
The economy is projected to grow by 1.5% in 2025. The Conference Board assumes current tariffs will stay in place through 2026, with possible changes tied to future North American trade negotiations and U.S. midterm elections. Although Canadian exporters have sought out new markets, the gains have not fully offset declines in exports to the United States.
Housing market activity has been muted, with reduced buyer participation linked to employment concerns. The Bank of Canada has kept its policy interest rate at 2.75%, with inflation holding at 1.7% in May. The Board expects one more 25-basis-point rate cut in the second half of 2025, depending on how economic and inflation data evolve.
