Canada’s labour market opened the year with a puzzling set of outcomes: total employment slipped while the unemployment rate declined. Statistics Canada reported a loss of 24,800 jobs in January, falling short of economists' modest expectations for a rise. At the same time the jobless rate moved down to 6.5%.
The apparent contradiction between fewer jobs and a lower unemployment rate is closely tied to a pullback in labour market participation. The participation rate dropped 0.4 percentage points to 65.0%, and the number of Canadians actively looking for work fell by 94,000. That decline in people seeking employment largely accounts for the technical drop in unemployment, rather than an increase in hiring intensity.
Examining the composition of the employment changes shows a notable shift in the type of work lost and gained. Part-time positions contracted sharply, declining by 70,000 roles over the month. Those losses were partly offset by an increase of 45,000 full-time jobs, indicating some movement toward more stable, full-time employment among those who remained attached to the labour force.
Sector-level results were uneven. Manufacturing and educational services recorded the largest declines among industries, while gains were recorded in information, culture and recreation. Geographically, Ontario experienced the heaviest job losses, shedding 67,000 positions. In contrast, Alberta and Saskatchewan posted modest job gains.
Wage growth showed signs of easing in January. Average hourly earnings for permanent workers rose at a 3.3% annual pace, a moderation that reduces one element of inflationary pressure on labour costs and will be watched closely by policymakers.
"Employment in Canada fell to start the year, but with fewer people seeking jobs the unemployment rate also surprisingly came down," said CIBC economist Andrew Grantham in response to the figures.
Grantham framed the data as conflicting, noting that the simultaneous declines in both employment and unemployment make the report a "mixed bag." He said the central bank is likely to adopt a neutral policy stance in light of these results, and that interest rates will be held steady for the remainder of the year as the economy processes these structural shifts.
Market expectations align with a cautious Bank of Canada approach. Policymakers now have to weigh the implications of a smaller labour supply against evidence that demand for new hires is softening. The divergent signals - weaker headline employment but lower measured unemployment due to falling participation - complicate the assessment of underlying labour market strength and the persistence of inflationary pressures.
Key takeaways
- Employment fell by 24,800 in January while the unemployment rate dropped to 6.5%.
- Participation slipped to 65.0%, with 94,000 fewer people looking for work, a decline concentrated in Ontario.
- Part-time jobs declined by 70,000 while full-time positions rose by 45,000; manufacturing and educational services led sectoral declines.
Context for markets and policymakers
- Moderation in average hourly earnings for permanent workers to 3.3% reduces some wage-driven inflation risks.
- Mixed labour signals are likely to support a neutral stance from the Bank of Canada and expectations that interest rates will remain on hold for the rest of the year, according to CIBC economist Andrew Grantham.