The latest Canadian employment report shows the job market is weakening gradually. Canada gained 8,800 jobs, which is a bit better than the expected decrease of 12,500 jobs. However, the unemployment rate rose to 7.0% from 6.9%. Certain sectors, like manufacturing and transportation & warehousing, are struggling. However, growth in other areas is offsetting this decline. If this trend continues, the Bank of Canada may cut rates in July to help the economy.

Gradual Increase in Unemployment

The data indicates that the economy is stable for now, but it’s not performing at its full potential. Unemployment is slowly rising and is expected to continue increasing later this year. Positive changes regarding US tariffs and additional rate cuts are needed to stabilize the situation. In May, Toronto’s unemployment rate hit 9%, the highest level since 2012, not counting the COVID-19 period. On the bright side, Lululemon remains optimistic about Canadian consumers, despite growing job market challenges. What we’re seeing in the latest employment data is a job market that is quietly weakening instead of collapsing. The report shows a small increase in jobs when many expected a decline, which might seem positive. However, rising unemployment at 7% continues a worrisome trend we’ve observed since late last year. Reduced hiring in manufacturing and logistics suggests those sectors are slowing down, possibly due to weak demand or higher costs. Meanwhile, gains in some service sectors are barely enough to keep overall job numbers from falling.

Likely Monetary Response

This steady decline makes a response from policymakers more likely. Increased unemployment cannot be overlooked, especially in major cities. With Toronto’s rate now at 9%, we’re seeing levels not seen in over a decade, except during crises. Nevertheless, Lululemon’s expectation of stable consumer behavior shows a disconnect between perception and the overall economy. Historically, weak employment data pressures central banks to ease policies, especially when inflation risks are low. Future rate decisions will likely reflect these changes. Lowering borrowing costs is one of the few ways to support demand without government help. A response in July now seems likely based on these trends. Markets will closely monitor how job losses affect consumer spending. An ongoing rise in unemployment over the summer could slow wage growth, which is crucial for maintaining spending. Without improvements in hiring or interest rates, confidence among workers and small businesses may falter. As economic activity decreases, the cost of inaction grows. Keep in mind that stabilization often starts from the margins. In past cycles, similar patterns led to multiple quarters of job losses, even when initial reports seemed stable—by the time the slowdown becomes apparent, action may already be underway. It’s important to recognize how sentiment deteriorates as jobs become scarce. We’ve seen this before. When trading based on rate expectations, it’s crucial to understand that rate cuts alone may not revive hiring if fundamental issues persist. Relief from tariffs, especially across the border, might help, but it won’t change the trend if job growth keeps declining. Currently, we’re not in a contraction phase, but the economy is underperforming. Without stronger indicators soon, any policy responses will simply be a matter of timing. Create your live VT Markets account and start trading now.

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