Canada's unemployment rate drops to 6.5% despite economy shedding 25,000 jobs
Fewer people looking for work pushed Canada’s unemployment rate to 6.5 per cent in January even as the economy shed 25,000 jobs, Statistics Canada said Friday.
Canada’s employment rate fell 0.1 percentage points to 60.8, the first decline since last August.
Meanwhile, the country’s participation rate — the proportion of the population aged 15 and up who were employed or looking for work — decreased 0.4 percentage points to 65 per cent. The number of people who were not participating in the labour force hit 12.4 million in January, up 2.7 per cent from a year earlier.
“This is a trend to keep an eye on,” Andrew Hencic, senior economist at TD Economics, said in a note. “Canada’s population is expected to shrink in 2026, meaning a smaller pool of available workers. Under these conditions the unemployment rate can continue to fall even if Canada is losing jobs.”
Part-time jobs decreased by 70,000 and was partly offset by a rise in full-time work, which increased by 45,000. Due to gains in full-time work, overall employment is up by 134,000, or 0.6 per cent, compared to 12 months ago.
Average hourly wages were up by 3.3 per cent year-over-year in January, down from the 3.4 increase in December.
Manufacturing had the most job losses, with 28,000 fewer people working in the sector. Overall employment in manufacturing was down by 51,000 or 2.7 per cent compared to a year ago. Educational services and public administration also suffered losses, but employment in both industries was little changed year-over-year.
Hiring was up, however, in information, culture and recreation, business, building and other support services, agriculture and utilities.
The youth unemployment rate fell from 13.3 per cent in December to 12.8 per cent in January, while employment remained more or less the same as fewer people aged 15 to 24 looked for work. Among those who were not in the labour force last month, 89 per cent reported that their main activity was attending school.
Excluding population shifts and job search activity, the employment rate among Canadians aged 15 to 64 provides a “useful gauge” of overall labour market conditions, Indeed Canada senior economist Brendon Bernard said in a note.
He said the share of working-age Canadians with a job was flat for a third consecutive month at 74.5 per cent and was unchanged from a year ago.
“Many of the themes facing the labour market in recent years will likely persist into 2026, and they aren’t all positive,” noted Bernard. “Without an economic spark on the horizon to kickstart hiring, and sectors like manufacturing taking another hit in January, we’re treading water for the time being.”
In another note, CIBC Capital Markets economist Andrew Grantham called the latest employment numbers a “mixed bag” that won’t affect the Bank of Canada’s next interest rate announcement on March 18. At its last announcement on Jan. 28, the bank held its benchmark rate at 2.25 per cent.
Hencic from TD Economics said one jobs report is “unlikely to move the needle” for the central bank. He said the 6.5 per cent unemployment rate suggests the labour market is better than expected, but not necessarily tight.
“An unemployment rate of 6.5 per cent is still above a long-term level associated with stable inflation,” said Hencic. “Coupled with the uncertainty about the supply side of the economy, and the prospects for trade, the (Bank of Canada) is likely content to watch things play out.”
• Email: jswitzer@postmedia.com