Canada’s economy lost 84k jobs in February (-0.4% month/month), far below consensus expectations for a 10k increase. Total employment is now essentially unchanged from September (+0.1%) having reversed most of last fall’s gains. The details painted a similarly downbeat picture with the number of full-time workers down 108k, and the number of private sector workers down 73k for the month.
The unemployment rate rose to 6.7% from 6.5% in January. The rise in the unemployment rate came despite another 27k people leaving the labour force. The decline took the labour force participation rate down another 0.1 percentage points (p.p.) to 64.9%. StatCan noted that the unemployment rate for both youth (+1.3 p.p.) and core working aged men (+0.3 p.p) rose in the month.
Job losses were spread across both goods (-28k) and services producing industries (-56k), with wholesale and retail trade (-18k), “other services” (-14k), construction (-12k) and manufacturing (-9.2k) bearing the brunt of the declines.
Wage growth was up in February, with average hourly wages up 3.9% versus a year ago (3.3% in January).
Key Implications
This was a decidedly weak report. Not only did employment decline, but the labour force contracted for a second consecutive month. Even looking through some of the noise in the top-line jobs figures, the unemployment rate rose again, reversing most of last month’s improvements. Undoubtedly, the report was weaker than expected, but looking through the noise shows an economy that has struggled to gain traction. Something that was to be expected given the structural changes Canada is facing.
Looking forward, we are expecting the labour market to tread water in 2026, as a rapid slowdown in population growth drags on labour supply, and soft economic momentum limits hiring. The wildcard to all of this is how big the inflation shock from the ongoing conflict in the Middle East will be. The duration of the supply disruption remains highly uncertain, but its length will impact inflation and, thereafter, consumer spending and the economy at large.
