Canada: Labour Market Improved in June but Headwinds Remain

Canada’s labour market ended Q2 on a modestly firmer footing, with employment up 18k in June, reinforcing the view that the economy stabilized after a soft Q1. But the details still point to a labour market stuck in a ‘no hire, no fire’ state. Employment still sits 6.3k below its December 2025 peak, but is up 99k from a year ago, largely due to private-sector hiring (+94k).

June job gains reflected a more favourable summer job market. Gains were entirely driven by rising part‑time employment (+17.5k), concentrated in student-hiring industries, led by retail and wholesale trade (+16k) and accommodation and food services (+15k). Employment fell in manufacturing (-17k) and construction (-13k).

Youth unemployment rate declined to 12.7% in June from 13.4% in May, near recent lows but still above the 10.8% pre-pandemic average. Summer job conditions improved for college-age job seekers, with unemployment among 20–24‑year-olds down 1.9 ppts from the same month last year to 9.4%. Conditions remained tough for younger cohorts, with unemployment for 15–19‑year-olds only 0.6 ppts lower than a year ago. Youth long-term unemployment remains at its highest level in at least two decades—even larger than the pandemic lockdown peak (graph 1).

Although job-finding remains weak, job separations are still contained (graph 2), keeping the unemployment rate in check. The participation rate held at 65.0% in June but remains 0.3 ppts below its year-ago level. With modest job gains and flat participation, the unemployment rate edged down to 6.5%, approaching the 6.4% average in 2024 before the latest round of trade volatility.

Total hours edged higher in Q2 (0.9% q/q annualized) after three quarterly declines (graph 3). Wage growth also picked up, reaching 3.3% y/y in June, running above May headline inflation and supporting real income gains despite energy-price pressures.

June’s job gains further reduce recession odds, but the labour market remains weak with soft hiring and elevated long-term unemployment. While oil and fuel prices have eased from crisis highs amid the US–Iran conflict, they remain above pre-conflict levels with upside risks, adding to inflationary pressure. That said, heightened uncertainty around US trade policy External link. remains a key headwind to both growth and inflation, leaving the balance of risks tilted in favour of the BoC remaining patient. We expect the BoC to hold rates at its next meeting and through 2026.