Canada’s Labour Market Holding Up, but Rising Unemployment a Concern

The Canadian labour market posted a modest gain of 8,800 jobs in May, outperforming economists’ expectations. Private services led the overall growth in employment for the month. So far in 2025, the finance, insurance and real estate sector has accounted for more than 85 per cent of net new job creation. In contrast, weakening business confidence amid ongoing tariff and trade uncertainties has dampened labour demand in the goods-producing sector, most notably in manufacturing and transportation. 

In Ontario, employment was little changed in May, despite the hit from auto sector layoffs and temporary plant closures. Windsor and Oshawa reported the highest unemployment rates among Canada’s largest cities, at 10.8 per cent and 9.1 per cent, respectively. Meanwhile, public administration shed 32,200 jobs, largely reflecting the expected post-election pullback – a pattern consistent with the past half dozen election cycles.

The unemployment rate rose for the third consecutive month to 7.0 per cent – the highest level since September 2016, excluding the pandemic period. The labour force grew by 0.2 per cent month-over-month. While growth in the labour supply has slowed in recent months, employment growth has slowed even more.

The unemployment rate increased across youth (ages 15 to 24 years) and prime-aged workers (ages 25 to 54 years). Youth unemployment reached 14.2 per cent, as students head into the crucial summer job market.

Employment Break Down – May 2025

Source: Statistic Canada — Labour Force Survey, May 2025

Overall, Canada’s labour market continued to soften in May. The impact of US tariffs was evident in both industry and regional patterns, contributing to another increase in the unemployment rate.  Wage growth remained steady for the month but has cooled from the roughly 5 per cent pace seen a year ago.

At its June policy meeting, the Bank of Canada opted for a wait-and-see approach – monitoring the economic impact of tariffs while also weighing the recent uptick in core inflation. May’s jobs report adds to mounting evidence of a weakening real economy. In our view, this will ultimately lead to further rate cuts from the Bank of Canada, totalling up to 75 points by the end of this year.

Housing Affordability Watch

CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis

A recent proposal aims to curb investor participation in the real estate market – but investment activities vary widely and treating them all the same is a mistake. With housing affordability in crisis, where should we draw the line?

Get our take on the recommendations and why distinguishing between types of investment activity is essential.

Read our latest Housing Affordability Watch here: Investors versus Speculators: Redefining Roles in Canada’s Housing Market

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