Canada’s labour market remained tight in May, adding 40,000 jobs as the unemployment rate fell to 5.1%, another record low, according to data released by Statistics Canada on Friday.
The shortage of workers continued to put upward pressure on hourly wages, which increased by 3.9% on a yearly basis, substantially up from the approximately 2% in prior years and even from April.
The higher wages could cause inflation to become even stickier and solidifies the likelihood that the Bank of Canada will raise interest rates by another 50 basis points in July, followed by another 50 in September.
The entirety of the job gains occurred in the services-producing industries, from trade to professional services to—unsurprisingly—accommodation and food services. The demand for workers in the travel industries after two years of the pandemic was stronger than ever.
At the same time, the goods-producing industries shed 41,000 jobs after consecutive increases from October to March, mainly because of the manufacturing sector, which lost 43,200 jobs despite strong demand.
In a reversal, full-time employment in May grew by 135,000 jobs, or 0.9%, while part-time employment fell by 96,000 jobs, or 2.6%.
This could be just another indication of how robust the demand for workers is, as some workers switched from part-time to full-time.
The growth in May was primarily driven by increases in employment among women, particularly young and core-aged women who are 25 to 54 years old. In addition, minorities had widespread employment gains. All are evidence of a labour market that is reaching far and wide across demographic groups.
Although May data still reflects an overheated economy, we should expect employment to plateau soon. The Bank of Canada’s recent rate hikes to tame inflation will take hold, and with supply chain woes continuing, an economic slowdown is likely this summer.
Although the pace of hiring will ease over the summer, unemployment will stay low in the near term.
We should still expect the Bank of Canada to continue hiking rates. The central bank just revised its inflation forecast upward, meaning that despite the impending economic slowdown, long-run inflation remains of paramount concern.