Bank of Canada more likely to cut than hike after 'brutal' jobs report, say economists
Canada’s “brutal” jobs report for February has most economists betting interest rates aren’t going anywhere this year, but a cut would be the more likely move if there is any change.
The economy shed 84,000 positions in February, far outpacing estimates for an addition of 10,000 jobs , and the unemployment rate rose to 6.7 per cent from 6.5 per cent in January, according to Statistics Canada. Analysts had called for the jobless rate to rise to 6.6 per cent.
Despite the weak job numbers, markets on Friday were still pricing in at least one rate hike this year due to the shock from rising oil prices , according to Bloomberg.
Here’s what economists think the data means for the economy and the Bank of Canada as it gets set to make its next interest rate announcement on March 18.
‘Brutal result’: BMO
“The result … ranks as one of the worst (non-pandemic) months ever for jobs,” Douglas Porter, chief economist at BMO Economics, said in a note.
Job losses piled up in the private sector and full-time positions accounted for all of the decline. Almost no sector was spared, with losses recorded in retail and wholesale trade, construction and manufacturing and other industries.
Employment in manufacturing is now down a “heavy” 2.8 per cent year over year, Porter said.
All told, job growth has flatlined over the past year.
“No sense sugar-coating this one — this is simply a brutal result,” he said, singling out the near-zero job growth as a damning metric for the state of the economy.
The job losses plus other data, including manufacturing sales for January, which contracted three per cent month over month, reinforce the economy’s poor start to 2026.
“Somehow, the market continues to price in Bank of Canada rate hikes for later this year, but if this employment report is at all indicative of underlying economic conditions, the last thing (it) would be considering would be rate hikes,” Porter said.
Higher unemployment rate: Desjardins
“It’s been a brutal start to the year for Canada’s labour market,” Royce Mendes, managing director and head of macro strategy at Desjardins Group, said in a note.
Hours worked fell 1.1 per cent month over month, a sign of worsening conditions, he said.
He also said the unemployment rate would have likely jumped higher if the labour force participation rate, which counts the number of people working or looking for work, hadn’t fallen, which was likely due to the slowdown in the number of non-permanent residents hunting for jobs.
“The recent spike in oil prices still has the market pricing more than one full rate hike for the Bank of Canada this year,” Mendes said.
But he said he expects policymakers will look past rising oil prices for the moment due to the weakness in the labour market and the housing sector, where elevated interest rates and uncertainty around the United States tariffs have discouraged would-be homebuyers.
‘Worrisome turn’: CIBC
“The Canadian labour market took a worrisome turn in February,” Katherine Judge, an economist at CIBC Capital Markets, said in a note, adding that “this is clearly a very worrisome report for the (Bank of Canada) that shows that labour market slack has increased and activity is frozen amidst trade uncertainty.”
She said the participation rate has fallen to levels last seen in 2021 and the slumping population-to-employment ratio, which sits at a “depressed” 60.6, down from highs of around 62.5 in early 2023.
Judge also estimated the unemployment rate could be as high as nine per cent when factoring in discouraged workers, people waiting for replies from job applications and those working part time because those are the only available jobs.
“This data will throw cold water on market hawks who had priced in a chance of Bank of Canada hikes this year prior to the data, and we continue to expect no move from the (Bank of Canada) this year,” she said.
If the Bank of Canada were to make a move, a cut is “more likely,” she said.
‘Alarm bells’: Oxford Economics
“The drop in February employment shouldn’t come as a surprise,” Tony Stillo and Michael Davenport, economists at Oxford Economics Ltd., said in a note.
They said Statistics Canada’s Labour Force Survey has consistently overstated the job market’s strength due to the way it estimates population.
The “more well-rounded” Survey of Employment Payrolls and Hours has consistently tracked ongoing weakness in the labour market, they said.
Stillo and Davenport said they expect job losses to build in the first half of the year, lifting the unemployment rate to seven per cent, before conditions start to improve in the second part of the year. By then, they estimate the jobless rate will fall to six per cent, with the review of the Canada-United States-Mexico Agreement “pivotal” to that decline.
“Alarm bells” will likely be going off at the Bank of Canada, they said.
“But we don’t think (the jobs report) will be enough to sway the (Bank of Canada) to cut rates on March 18,” they said. “Elevated trade policy and geopolitical uncertainty will likely keep (it) on the sidelines for now, but the odds of a rate cut would increase if the labour market or economy worsens significantly.”
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