April's Labour Force Survey (LFS), released on Friday, provided a softer read on the Canadian economy, said TD.
According to Statistics Canada, employment was little changed in April, declining by 18,000 versus expectations for a 10,000 gain, while the unemployment rate edged up to 6.9%. The labor force participation rate ticked up to 65.0%, contributing to the rise in unemployment.
The increase in participation could be viewed as a modest positive, with workers being drawn into the labor market often a vote of confidence in job prospects, said TD. But it added there was little evidence of broader momentum beneath the surface.
Meanwhile, wage growth decelerated in April, with constant-composition measures showing little improvement. To some extent, this lack of labor market dynamism works in the Bank of Canada's favor by helping contain broader price pressures from the energy price shock, said TD. The BoC has continued to characterize labor conditions as "soft," reflecting subdued hiring and weaker demand for workers, the bank noted.
As such, this LFS is unlikely to materially alter the BoC's current wait-and-see approach, TD aded.
A similar message came from last week's trade report, noted TD. Canada's trade balance moved back into surplus in March after five consecutive monthly deficits. However, the improvement was largely driven by commodity prices and precious metals rather than broad-based external demand.
Export values surged on higher crude oil prices and increased gold shipments, while imports pulled back following February's outsized gain. Excluding metal, mineral, and energy products, export growth was far more moderate. As a result, March's trade report likely overstates the strength of the external sector, according to TD, which continues to expect net trade to subtract from Q1 2026 real gross domestic product growth, reflecting stronger imports over the quarter.
If energy prices remain elevated, nominal exports and the trade balance should improve further in Q2, even if real export volumes remain subdued, TD said.
Higher energy exports, however, offer little consolation to consumers. TD's proprietary card-spending data show gasoline station spending rising 3.6% on the month and 16.7% on the year in April, before the gasoline tax holiday took effect, adding pressure to household budgets.
The BoC has indicated it stands ready to respond should higher energy prices feed more broadly into inflation, but for now, there is little reason for policymakers to move decisively in either direction, according to the bank.