The Canadian labour market came back down to earth in February, adding just 1.1k positions, compared to a gain of 76k in January. Full-time positions declined (-19.7k), offset by gains in part-time (+20.8k).
The unemployment rate held at 6.6%, as the labour force contracted for the first time in seven months. Easing population flows were the driver here, following the implementation of the federal government’s new non-permanent resident policy.
Employment by sector diverged, with wholesale and retail trade (+51k) and finance/insurance/real estate (+16k) making gains. However, declines were seen in professional, scientific and technical services (-33k) and transportation and warehousing (-23k).
Lastly, total hours worked cratered by 1.3% month-on-month, as winter storms resulted in lost work for thousands of employees. Meanwhile wages were up 3.8% year-on-year (from 3.5% in January).
Key Implications
The job market couldn’t keep up its feverish pace over the last few months. Winter storms were likely the culprit, but deteriorating hiring sentiment given heighten policy/trade uncertainty may have also started to bleed into the data. One month doesn’t make a trend, but Canadians should be closely watching the labour market for signs of weakness in the months ahead. Luckily, the Canadian labour market came into the current tariff crisis on solid footing, which is important given the significant headwinds the economy is facing.
The Bank of Canada is set to meet next week, and markets are solidifying around a 25 bp cut. We have been arguing that it is prudent for the central bank to keep cutting as insurance against the downside risks brought on by tariffs. Our scenario analysis embeds significant risk of recession should President Trump keep holding tariffs over our heads. And even if delays keep happening, the uncertainty will weigh on business and consumer confidence, diminishing our previously rosy outlook for the economy.
