Canada Employment

Canada’s Labour Market Shows Resilience,
While Tariff-Exposed Sectors Soften

Economy ekes out job gains. Canada added 8,800 jobs in May, in contrast to the fall in employment expected, highlighting resilience amid ongoing trade uncertainties. Meanwhile, slowing immigration meant that monthly population growth was at its lowest in four years. Yet May’s hiring was not enough to prevent a rise in the unemployment rate to 7.0 per cent – its highest since 2016. Looking ahead, Canada’s labour market is likely to remain sluggish, as tariff risks curb business investment and hiring intentions. Forecasts suggest a peak unemployment rate around 7.5 per cent. Green shoots may be emerging, however, reinforcing some views that the labour market is softening but not collapsing. Not only is the nation set to remove interprovincial trade barriers by July, but some reports also indicate that Canada and the United States are nearing a trade and security agreement. Although slowing global economies do provide some short-term headwinds, long-term economic growth prospects are improving.

Labour market trends support further rate cuts. The Bank of Canada recently held its key policy rate at 2.75 per cent due to trade uncertainty, stronger than expected GDP growth and mounting inflationary pressures. Many economists and money markets nevertheless continue to price in additional cuts, partially driven by Canada’s softening labour market. While the nation’s economy eked out muted gains in May, year-to-date job creation was down 63 per cent compared with the same time period last year. The unemployment rate has also increased 40 basis points since January. As such, terminal rate forecasts range from 2.0 per cent to 2.25 per cent.

Commercial Real Estate Outlook

Trade-heavy sectors exposed. The industrial sector was showing some stabilization entering 2025 amid dwindling supply-side pressures and increasing space demand. In the first quarter, the nation’s vacancy rate fell 10 basis points to 3.4 per cent – its first quarterly drop since early 2022. Tariff risks have since curbed this momentum. Preliminary estimates for the second quarter show net absorption returning to negative territory, pushing the vacancy rate back up to 3.7 per cent. Given the property sector’s key role in facilitating trade, further softening is likely. May’s job report may reflect this; the manufacturing industry shed 12,200 positions, in addition to the transportation and warehousing industry losing 15,500. Despite these challenges, the property sector’s historic build cycle is winding down. More clarity surrounding both domestic and international trade policy – which could materialize in the coming weeks – may also act as a tailwind for the sector heading into 2026.

Resilient consumption aids retail sector. Wholesale and retail trade led job gains in May, seeing a roughly 43,000-position increase. This may reflect a boost in demand for domestic businesses amid tariffs, as well as the return of students to the labour force. At the same time, domestic consumer spending – while slowing from the 4.9 per cent annualized reading in the final quarter of last year – was resilient at 1.2 per cent annualized in the first quarter. As a result, the nation’s retail vacancy rate stayed near an all-time low of sub-2.0 per cent as of the first quarter. Given its stability in times of uncertainty, essential-based, grocery-anchored retail is a preferred investment option. 

* As of May; ** Preliminary estimates through 2Q
Sources: Marcus & Millichap Research Services; Altus Data Solutions; Capital Economics; CoStar
Group, Inc.; Statistics Canada