Canadas labor market delivered a surprisingly strong performance in May, with employment rising sharply and the unemployment rate declining, suggesting the economy remains more resilient than many economists had anticipated despite slowing growth.

Data released on Friday showed the Canadian economy added 87,800 jobs in May, while the unemployment rate fell to 6.6%.

The result was significantly stronger than market expectations. Economists surveyed by Reuters had expected unemployment to remain unchanged at 6.9%, the highest level in six months recorded in April, while forecasting a gain of only 10,000 jobs.

May marked the first monthly increase in employment in 2026 and helped recover roughly 80% of the jobs lost since the beginning of the year, according to Statistics Canada.

The last major employment gain had been recorded in October 2025.

Resilience despite economic slowdown

For more than a year, the Canadian economy has faced pressure from US tariffs and ongoing trade uncertainty, which have weighed heavily on key sectors, contributed to job losses, and weakened hiring and investment activity across the broader economy.

Canada entered a technical recession at the end of the first quarter after recording two consecutive quarters of economic contraction on an annualized basis.

However, economists remain divided on whether the country is experiencing a true recession, given the absence of widespread job losses and continued growth in several sectors.

Statistics Canada reported that the construction sector added 26,800 jobs in May, while the information, culture, and recreation sector gained 19,300 positions.

Employment in transportation and warehousing increased by 18,700 jobs, while accommodation and food services added 17,000 positions.

In contrast, the wholesale and retail trade sector, which accounts for roughly 14% of total employment, lost approximately 35,000 jobs.

Jay Zhao-Murray, Chief Economist at Sibley Creek Economic Research, said the report provides encouraging evidence that the Canadian economy has not slipped into a deeper downturn.

These are positive developments for the Canadian economy and should help dispel the notion that Canada has entered a recession, Zhao-Murray said.

He added that the labor market continues to show underlying strength, potentially giving the Bank of Canada room to leave interest rates unchanged at next weeks policy meeting.

Growth concentrated in full-time employment

Economists also noted that preparations for the upcoming FIFA World Cup, which Canada will partially host, could provide additional support to employment in certain sectors during June and July.

Virtually all of Mays employment growth came from full-time jobs, which increased by 154,000 positions and nearly offset most of the losses recorded during the first four months of the year.

Meanwhile, part-time employment declined by 66,200 jobs.

Average hourly wages for permanent employees, a key measure closely monitored by the Bank of Canada as an indicator of inflation pressures, slowed to 3.2% year-over-year in May from 4.8% in April.

Youth unemployment also improved, falling by 0.9 percentage points to 13.4%, marking its first decline since January.

Market reaction

Following the release of the report, the Canadian dollar strengthened 0.12% to 1.3889 Canadian dollars per US dollar, equivalent to about $0.72 US.

Canadian two-year government bond yields rose 9.5 basis points to 2.762%.

Markets also increased expectations for future policy tightening, fully pricing in a 25-basis-point Bank of Canada rate hike by the end of the year, with December currently viewed as the most likely timing for such a move.