Canada’s economic resurgence appears well under way. The economy added 76,000 jobs in January, the employment rate rose 0.1 percentage points to 61.1 per cent and the unemployment rate fell 0.1 percentage points to 6.6 per cent.
The unemployment rate fell back to a level last seen in October 2024—and is down from last November’s high point of 6.9 per cent.
This strong jobs report came about because of a marked increase in hiring as well as a slowdown in population growth from stricter immigration rules.
Business sentiment has improved greatly in recent months as lower rates and price stability created a favourable environment for businesses to invest and resume projects that might have been put on hold over the past couple of years. Demand for talent has returned—another encouraging sign for Canada’s economy.
The Bank of Canada will likely hold its key interest rate at its next meeting—as long as the U.S. chooses not to impose steep tariffs on Canadian goods following a stand-off that ended in a 30-day implementation pause.
The resurgence of the job market, the moderation of wage growth and the restored price stability would all factor into the central bank’s decision to hold, provided no tariffs take effect. Hiring will likely continue to be robust in a year of expansion.
The decrease in incoming immigrants, together with the planned outflow of current temporary residents whose visas and permits soon expire, will slow down population and labour force growth, lending a tailwind to job numbers.
The flipside is that slower population growth means a slower increase in aggregate demand, a key factor that kept the Canadian economy afloat and out of a recession through 2024. Household earnings, however, are expected to improve this year—which will drive up per-capita spending and demand.
Six rate cuts in a row fuelled hiring, with employment gains especially strong among youth (31,000 additional jobs), and core-aged women (36,000) and men (28,000).
The main sectors that added jobs include manufacturing (33,000), and professional, scientific, and technical services (22,000).
Manufacturing vulnerable if tariffs come in
The volatility caused by trade policy uncertainty could also slow down hiring in the months ahead, especially in sectors like manufacturing that are heavily influenced by trade.
Manufacturing is particularly susceptible due to the highly integrated nature of the U.S.-Canada-Mexico manufacturing sector.
That being said, employers seemed to be optimistic and are still hiring. Construction added 19,000 jobs, as this is one of the sectors highly sensitive to rate changes. The last rate cuts have encouraged construction activity to pick back up.
Average hourly wage grew by 3.5 per cent, down from the average of 5 per cent over the past couple of years. This marks a return to price stability.
Still, those who are unemployed are still finding it difficult to get re-hired. Workers also appear less likely to plan to leave their jobs, suggesting that uncertainty stemming from trade policy is affecting them even at a time when demand for talent is climbing.
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