Canada’s employment report next Friday and the Bank of Canada’s Business Outlook Survey on Monday should provide important updates on the balance between labour market conditions, business confidence and inflation expectations.
We expect June’s labour market to broadly hold onto gains in the prior month that retraced much of the weak data over the first four months of the year. We look for jobs to edge higher by 10,000, and the unemployment rate to remain at 6.6% in June, matching May’s reading and down from 6.9% in April.
Unemployment is still elevated by historical standards, and volatile from month-to-month, but has mostly edged gradually lower since hitting a peak of 7.1% in August/September last year. We continue to expect a gradual improvement over the remainder of 2026.
Wage growth will also remain on the radar after slowing sharply in May. Monthly readings can be volatile, but a still-elevated unemployment rate should continue to keep underlying wage pressures contained in the near term.
Looking ahead, job growth is expected to remain soft, but an unprecedented pullback in Canada’s population is shrinking the labour force with per-worker labour market conditions showing more signs of improvement.
Business Outlook Survey to hint at confidence during oil price shock
The Q2 Business Outlook Survey will provide an early look at how business sentiment was impacted by the surge in energy prices in recent months. Survey responses were (at least initially) likely collected largely in May when oil prices were higher (West Texas Intermediate oil prices averaged just under US$100/barrel compared to under $70/bbl recently).
Results will still be reviewed for signs on whether inflation pressures broadened. But longer-term inflation expectations should remain well anchored as underlying pressures have continued to track close to the BoC’s 2% target.
Measures of expected future sales, employment, and business investment intentions will also be key after showing signs of improvement in the Q1.
Continued labour market stabilization alongside broadly steady business sentiment and well-anchored inflation expectations would reinforce the view that interest rate changes are not needed at this stage.
May trade data will also be released on Tuesday. We expect exports to rise 0.6%, slowing from 1.6% in April, while imports are expected to edge down 0.8%. Softer energy price growth in May should temper the energy trade balance, while softer motor vehicle shipments suggest some moderation in auto trade.
