Canada's economy had a soft start to 2026, with real gross domestic product growth disappointing consensus expectations, while GDP was broadly unchanged in Q1 and the unemployment rate edged higher, RBC said.
Still, the bank expects signs of stabilizing labor demand in the summer and hiring for the federal government census -- typically 15,000 jobs -- to have driven moderate job growth of about 25,000 in May, while the unemployment rate likely ticked lower to 6.8%.
This improvement follows large counts of job losses earlier this year, but also hidden signs of resilience in the labor market. Critically, layoffs have been limited to heavily trade-exposed sectors and have been declining in total since October 2025. Instead, unemployment increases in 2026 largely reflected longer job searches for new market entrants due to persistently weak hiring, stated RBC.
Canada is scheduled to release May's Labour Force Survey (LFS) on Friday.
That is little comfort for those looking for work, but it's not the kind of labor market softening typically seen, for example, at the beginning of a recession, pointed out the bank.
In a recent speech, the Bank of Canada's Deputy Governor Nicolas Vincent also characterized the job market as "low hire, low fire," and highlighted a high share of people who have been out of work for a long time, and particularly high unemployment among young job seekers.
Overall, hiring intentions took a step back after the Middle East conflict injected new uncertainty into the business operating environment. Total job postings on Indeed.com, however, showed signs of resilience, with job postings starting to bounce back in May after declining in March and April.
Looking ahead, elevated oil prices remain a key risk to the Canadian economy and labor market, added RBC. Sharply higher oil prices raise revenue flowing into oil-producing regions, but could also divert business priorities from hiring toward margin preservation as fuel costs surge.
Meanwhile, concerns about consumer demand -- with higher gasoline prices cutting into household purchasing power -- could also limit businesses' ability to pass on those cost increases while remaining competitive. Though early consumer spending data show limited signs of demand destruction so far, according to the bank.
RBC will continue to monitor conditions as elevated oil prices persist. However, with household demand broadly holding up right now, the bank's base case forecast remains cautiously optimistic for more stabilization in hiring in the summer, and a gradual decline in the unemployment rate toward the end of this year.