Canada’s unemployment rate rose to 6.2% in May with modest job gains, highlighting a weakening job market amid high interest rates.
OTTAWA — Statistics Canada reported that the unemployment rate edged up to 6.2% in May, from 6.1% in April, as the Canadian economy added a modest 27,000 jobs. This increase in the unemployment rate reflects a gradually weakening job market influenced by high interest rates affecting both consumers and businesses.
The agency’s labor force survey indicates that while there was job growth, the pace was insufficient to keep up with the expanding labor force. Notably, the survey found that a smaller proportion of those who were unemployed in April found work the following month, compared to pre-pandemic averages for those months. This trend suggests a sluggish recovery in employment opportunities, with many individuals remaining without jobs for extended periods.
Despite the rising unemployment rate, wage growth continued to show resilience. Average hourly wages in May were up 5.1% from a year ago, reaching $34.94. This robust wage growth is a double-edged sword: while it benefits workers, it also adds to the inflationary pressures within the economy.
The latest data comes just two days after the Bank of Canada announced its decision to lower interest rates for the first time in four years. The central bank cited signs of easing inflation and a weakening economy as the primary reasons for the rate cut. The reduction in interest rates is aimed at stimulating economic activity by making borrowing cheaper for consumers and businesses, potentially spurring investment and spending.
However, high interest rates prior to the cut have already had a significant impact. Businesses have faced higher costs for loans and investments, while consumers have grappled with increased mortgage and loan payments. These factors have collectively contributed to a slowdown in economic growth and a softening labor market.
In the context of regional employment, certain sectors experienced varied fortunes. While the service sector saw some job gains, the manufacturing and construction sectors faced challenges, partly due to the high borrowing costs and slowing demand. Additionally, the technology sector, which had been a significant driver of employment growth in recent years, has shown signs of cooling off, reflecting broader global trends in the industry.
Economists are closely watching these developments, as the interplay between wage growth, inflation, and employment will be critical in shaping future economic policy. The Bank of Canada’s decision to lower interest rates is seen as a proactive measure to counteract the downturn, but its