OTTAWA – Canada’s unemployment rate ticked down in January as the labour market added 76,000 jobs, beating economist expectations for the month and furthering speculation the Bank of Canada could decide against an interest-rate cut next month.
The jobless rate ticked down 0.1 percentage points to 6.6 per cent, marking the second straight monthly decline after peaking at 6.9 per cent in November, Statistics Canada reported on Friday.
Economists polled by Reuters had expected only about a third of those new jobs, and for the unemployment rate to rise slightly.
“We’ve got an incredibly strong job market that’s got some serious momentum behind it,” said Derek Holt, vice-president and head of capital markets economics for Scotiabank, in an interview.
“I think what this means is that there’s a very, very high bar for the Bank of Canada to be contemplating any further rate cuts in the near term.”
Holt said the question is what’s driving the strong numbers. He speculated perhaps the trade war rhetoric from U.S. President Donald Trump has shaken companies’ confidence to invest, and in turn they’re hiring more workers to meet production needs.
“Maybe Donald Trump is making Canada’s job market great again.”
The manufacturing sector carried the largest employment gains, adding 33,000 jobs — a third of those in Ontario alone.
Statistics Canada highlighted the manufacturing sector in its monthly report, saying nearly 40 per cent of the 1.9 million manufacturing jobs depend on U.S. demand for Canadian exports.
In the automotive sector, nearly 70 per cent of manufacturing jobs depend on U.S. demand.
The relevance of the figures comes amid economic tensions between the two countries, where Trump has threatened a 25 per cent tariff on all imported Canadian goods, and Canada has warned it would retaliate.
Trump paused his tariff plan for a month on Monday after commitments from Canada to designate cartels as terrorist entities, and appoint a “fentanyl czar” to act as a liaison between the two countries, among other commitments.
Statistics Canada reported across all sectors, full-time employment rose by 35,000 in January, with another 40,900 part-time jobs.
The public sector lost 8,400 jobs in the month, however, and wage growth continued to decelerate in January, the report said.
Hourly wages increased at a rate of 3.5 per cent year-over-year in January, down from four per cent growth in December.
“The (Bank of Canada) signalled in January that further interest rate cuts would be contingent on economic data continuing to look soft,” said RBC assistant chief economist Nathan Janzen in an interview.
“Based on that firmer labour market data for January, that would increase the odds that they maybe slow the pace of interest rate cuts and forgo a rate cut in March.”
Andrew Grantham, senior economist at CIBC Capital Markets, said the report was clearly very positive, but believes rates still need to move lower.
“Even after the improvement seen during the past two months, the unemployment rate is still only just back to where it stood in October, and is still consistent with a labour market with plenty of slack,” he said in a note to clients.
“We continue to think that even lower interest rates will be needed for the economy to fully absorb that slack, particularly given heightened trade uncertainty which could impact hiring decisions ahead.”
The Bank of Canada will have more data to consider before it meets on March 12 including another jobs report and inflation data.
Annual inflation dipped to 1.8 per cent in December, according to the latest Statistics Canada reading. The next report for January is due out on Feb. 18.
Royce Mendes, managing director and head of macro strategy at Desjardins, said the central bank might choose to hold rates steady in March if no tariffs are implemented before then.
“With inflation holding steady around the two per cent target and wage growth cooling to an annual pace of just 3.5 per cent in today’s numbers, the good news is that central bankers have some flexibility to respond if a shock hits the economy,” he said.
“Rates have risen across the Government of Canada yield curve and the Canadian dollar has appreciated in light of the surprisingly strong data.”
This report by The Canadian Press was first published Feb. 7, 2025.
Note to readers:This is a corrected story. In a previous version, the November unemployment rate didn’t reflect the revised number.
