Canada’s Labour Market on the Back Foot

Employment declined by 84,000 in January (–0.4 per cent). The unemployment rate rose to 6.7 per cent, an increase of 0.2 percentage points, while the labour force participation rate edged down 0.1 percentage points to 64.9 per cent. On a year-over-year basis, average hourly wages increased by 3.9 per cent.

Key insights

The Labour market’s rocky start to 2026 continued in February with employment loosing all the gains experienced late last year. This time, job losses where more generalized, declining across almost every industry. Looking on a year-over-year basis, Canada’s employment is only up 0.2 per cent (51,800) while the unemployment rate is up 0.1 percentage point to 6.7 per cent. February’s labour market data clouds the outlook for 2026, serving as a reminder that economic pressures are likely to remain a key part of the picture this year.

The manufacturing sector continues to face significant pressure amid volatile economic conditions. The industry has been repeatedly affected by tariffs and ongoing tariff threats. For example, the U.S. administration has imposed tariffs on several Canadian products, including furniture, aluminum and steel, and auto parts. More recently, it has also threatened tariffs on—and the decertification of—Canadian aircraft, as well as tariffs on Canadian fertilizers. As a result, tariff fatigue appears to be setting in, and manufacturing employment has now fallen to its lowest level since the trade war began. Looking ahead, performance in this sector hinges on the CUSMA negotiations later this year, with a wide range of scenarios (both positive and negative) remaining possible.

Despite this lingering uncertainty, we expect labour markets to experience a modest recovery in 2026. Overall, we anticipate that sectors unaffected by tariffs will continue to grow and the economy will stabilize somewhat compared to 2025. That said, the pace of recovery will be tainted by generally low consumer and business confidence.

Changes in migration trends are beginning to show up in labour market data. Migration to Canada slowed gradually last year following the federal government’s reversal of migration policies after historically strong population growth in 2024. While the resulting slowdown in population growth initially had limited impact on labour markets amid a broader economic slowdown, the pace of the deceleration is now beginning to weigh on labour market conditions. The monthly rise in working population averaged 91,700 in 2024 and has declined to just 7,300 in February. When looking at overall population, the most recent numbers are even lower, with population declining in the third quarter of 2025. As these trends intensify in 2026, we expect downward pressure on the unemployment rate, as reduced competition among workers offsets some effects of ongoing economic uncertainty.