The Weekly Bottom Line
Our summary of recent economic events and what to expect in the weeks ahead.
Date Published: June 5, 2026
- Category:
- Canada
Canadian Highlights
- Canada’s labour market delivered a pleasant surprise in May, with employment handily beating consensus expectations and the unemployment falling to 6.6%.
- The jobs report helped quiet recession talk and prompted markets to fully price in a rate hike by the end of the year.
- Trade negotiations remain a major focus as attention shifts to next week’s trade report. Also on the deck is the Bank of Canada’s policy decision, where rates are widely expected to remain unchanged.
U.S. Highlights
- U.S. data continued to point to a resilient economy, with job growth surprising to the upside in May and broader activity holding up better than expected.
- Recent indicators suggest growth remains intact despite restrictive monetary policy.
- Markets balanced firmer U.S. data against easing global risks, keeping sentiment constructive and erasing hopes for further central bank easing.
Canadian markets had a lot of moving parts to digest. The sentiment in the oil market reversed, with crude prices recovering and ending on track to post their first weekly gain in three weeks. The S&P/TSX Composite Index reached another record high earlier in the week, but gave up gains on Friday, following a blockbuster jobs report. Likewise, Canadian government bond yields were little changed through most of the week before jumping sharply on Friday. The five-year bond yield, a key benchmark for mortgage rates, rose 10 basis points, while the 10-year climbed 8 basis points.
Speaking of which, the May labour market report – the major data event his week – delivered a significant upside surprise. Employment increased by 88k, handily beating expectations for a 10k gain, and pushing the three-month average back into positive territory at 28k (Chart 1). The details were equally strong. Job gains were broad-based across industries and concentrated in full-time positions, reversing much of the weakness seen earlier this year. The unemployment rate fell 0.3 percentage points to 6.6%, while youth unemployment rate declined nearly a full percentage point to 13.4%.
The labour market report also helped temper the recession talk. “Technical recession” chatter picked up following a contraction in real GDP in the first quarter reported last week. The economy is clearly operating below capacity, even judging by today’s employment numbers – we are essentially back where we were in January. In Canada, recession determinations are made by the C.D. Howe Institute’s Business Cycle Council, which this week reiterated that it assesses recessions through the lenses of duration, amplitude, and scope. This means that a modest quarterly decline in GDP must be corroborated by weakness in adjacent quarters and accompanied by a broad-based decline in economic activity. On the latter point, the simple unweighted diffusion index of GDP by industry has yet to breach recessionary thresholds (Chart 2), despite pressue on trade-exposed industries.
In that regard, next week will bring another important data point with the release of April’s international trade figures. Trade developments remain a major focus as attention shifts towards the next phase of CUSMA discussions. Early positioning from both sides suggests negotiations are unlikely to be straightforward, with several longstanding regulatory and market-access disputes already resurfacing. There were several tariff announcements this week, but the direct impact on Canada is likely limited.
Next week will also bring the BoC’s next policy decision, where rates are widely expected to remain unchanged. Our assessment remains that the Canadian economy is treading water – not strong enough to justify rate hikes, but not weak enough to signal a deep downturn. As such we see little reason for the Bank to move. Markets, meanwhile, are now pricing in a full rate hike by year-end–a reflection of how quickly today’s jobs report shifted the narrative. Separating the wheat of the economic data from the chaff of the politicized narrative around it remains an important task, and we will continue watching the data closely to determine whether this delicate balance can hold in the weeks ahead.
The U.S. economy showed renewed resilience in May, reinforced by a stronger-than-expected gain in nonfarm payrolls on Friday. Hiring rose by a robust 172,000, well above consensus of roughly 85,000, while the unemployment rate held steady at 4.3%. Job gains were broad-based, with continued hiring in health care & social assistance helped by a pick-up in cyclical sectors like construction, leisure & hospitality and manufacturing. Wage growth also remained firm, with average hourly earnings up 0.3% m/m, indicating household income support remains intact. Encouragingly, prior months hiring tallies were also revised higher, reinforcing the view that labor demand has been more durable than previously thought (Chart 1), despite uncertainty from the energy shock.
That message is echoed in activity data outside the labor market, which continue to point to resilience. The ISM Manufacturing Index rose to its highest level since mid-2022, with new orders and production strengthening, while the ISM Services survey showed business activity and new orders rebounding. Those reports suggest demand is holding up, even if firms are cautious on inventories and hiring. Also encouraging was that vehicle sales edged higher in May. Big ticket purchases are typically the first thing to go when consumers are feeling less confident in the economy, and so far demand seems to be holding up despite elevated fuel prices and tight financing conditions.
Against that backdrop, Federal Reserve officials this week maintained a patient, data-dependent tone, reinforcing expectations for an extended pause. Despite April’s uptick in CPI – and likely another one in the May data next week – inflation expectations implied by bond markets has remained stable, giving policymakers room to remain patient (Chart 2). Officials have acknowledged that inflation remains too high but also signaled confidence that policy is sufficiently restrictive for now. In effect, the Fed appears willing to tolerate near-term volatility in the data so long as broader disinflation trends are not clearly reversing. But with the labor market now showing early signs of heating up, their patience could soon be pressure-tested. Governor Waller has already suggested that the committee could move away from its current easing bias based on recent inflation moves. And, while Kashkari, Barkin, and Daly emphasized a more cautious tone on dropping the easing bias, that was before Friday’s payrolls release, which may alter their thinking on the current state of the labor market.
From the Fed’s perspective, the debate is shifting from when to cut toward how long rates may need to stay elevated, and whether further tightening should be ruled out. Fed futures are now fully pricing a quarter-point hike by year-end, underscoring how sensitive expectations remain to evidence that growth and labor demand are proving more persistent than anticipated. Next week’s inflation data will be key to setting the stage for the Fed’s June meeting and determining whether the recent shift in rate expectations has further room to run.
Disclaimer
This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.
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