Canadian businesses are tempering hiring expectations in the first half of 2026 as troubling headwinds persist around trade with the U.S., the boom of AI, and gaps in the labour market.
Less than half of companies, around 44 per cent, plan to increase their workforce, down from 51 per cent in the first half of last year, according to a survey by staffing agency Express Employment Professionals, published Dec. 29.
Almost 42 per cent plan to maintain their workforce, while 10 per cent plan to decrease their numbers.
“Hiring is somewhat cooling for the first half of next year. I wouldn’t say that it’s collapsing as they (companies) are still planning to add staff. I think they’re just being a little bit more selective,” said Daisy Kaur, franchise owner of Express Employment Professionals branch in Pickering.
The survey received responses from more than 500 hiring managers from a wide range of industries, including, education, arts and entertainment, construction, food services, retail trade, public administration, transportation and warehousing, health care, and finance and insurance. The survey was conducted at the start of November.
Many companies are “cautious,” and are “optimistic” they can grow, Kaur said, but businesses are feeling cost pressures due to economic uncertainty from trade policies.
Auto, steel, aluminum, and lumber sectors are being hit the hardest by tariffs with job loss already impacting those industries over the past several months, said Shelly Kaushik, senior economist and vice president economics at BMO.
But trade uncertainty creates a ripple effect for the rest of the economy too, she added.
“The trade landscape remains quite uncertain. It kind of affects everybody, right?” Kaur said. “There’s this concern, because a Canadian might be thinking they work in a sector that may not necessarily be tariffed for right now, but it could be tomorrow, it could be next week, or next month.
“So, they could be directly impacted very quickly, and that’s on a top concern, making them hold off on a large purchase or business holding off on further investment because of this broader dampening on sentiment.”
For businesses looking to decrease their payroll, the biggest reason is to reduce costs, according to the survey, followed by the impact of tariffs, dampening consumer demand, and the rise of AI.
Among companies planning to reduce staff, 23 per cent cite increased use of automation and AI, and 21 per cent will not replace employees who leave.
While AI is expanding, Kaur said, “we are still very much in the early days” of realizing the full extent and potential of AI.
There is data to indicate AI could have the largest impact on entry level jobs, but even then, “it’s hard to know exactly how sustainable it will be,” Kaur added, “and which sectors it will affect a little bit more than others.”
An issue for employers since the pandemic has been hiring challenges due to gaps in the labour market, as it becomes harder to find skilled workers or candidates with proper experience, the survey said.
Brendon Bernard, senior economist at jobs search site Indeed, said while business sentiment may dampen in 2026, there’s been a “consistent” story in the job market for several years, which has seen employers scale back their recruitment activity since the height of the pandemic in 2022 and early 2023.
At the same time, layoffs have also remained relatively low and people aren’t leaving their jobs, so there’s less backfilling occurring, he said.
In November, the unemployment rate fell to 6.5 per cent, down from 6.9 per cent in October, which historically is not “particularly high,” Bernard said.
“Economic growth projections aren’t calling for contractions or anything like that,” he said, “just more lukewarm activity, which is reflected in how businesses will operate.”
