By Robb M. Stewart
OTTAWA--Canada's economy shed jobs for the first time in five months to kick off the year, though the unemployment rate still fell sharply as fewer people looked for work.
It is a soft start to the year for the labor market that in part reflects the federal government's efforts to curb once-booming immigration. The jobs figures from the national data agency also continue to show the pressure faced by industries directly exposed to the Trump administration's trade policy.
Employers in the country cut 24,800 jobs in January, Statistics Canada said Friday. That followed an only modest 10,100 jobs added in the final month of last year, which itself represented a slowdown after employment climbed almost 200,000 over the three months to November.
Despite an unexpected drop in employment, the jobless rate fell to 6.5%, the lowest measure in 16 months, which more than rolled back the 0.2 percentage point advance in December. The rate is now down 0.6 point from the recent high of 7.1% recorded in August and September.
Behind the headlines was a decline in the participation rate. The proportion of the working-age population who were employed or looking for work in January decreased 0.4 point, to 65.0%. That came as the country's labor force contracted by 119,000 from the month before, and the population was little changed, nudging up an estimated 5,200.
Economists had expected a slim 5,000 increase in employment would hold the unemployment rate at 6.8% in the first month of the year, though they view the actual outcome as mixed rather than simply gloomy. Government bond yields and the Canadian dollar were little changed in the wake of the data.
The employment decline is unlikely to come as a shock to the central bank, which as recently as this week flagged the anticipated affects of slower population growth and aging demographics. The numbers also show a part-time jobs fell a steep 69,700, a drop that was partially countered by a 44,900 increase in full-time positions.
Unseasonably cold and snowy conditions in parts of the country, along with a rough cold and flu season, may also have played a role in the data and prevented some Canadians from entering the workforce, economists suggested.
Canada's economy is expected to show only sluggish growth, squeezed by U.S. trade policy and reductions in immigration. The Bank of Canada projects growth will average 1.5% over the next two years, though it doesn't expect the jobless rate to trend higher as lower population growth limits any expansion of the labor force.
"Collapsing population growth is finally being captured in the labor force survey, which would keep downward pressure on the unemployment rate despite the weakness in hiring," Bradley Saunders, North America economist at research firm Capital Economics, said. "While a rebound in participation is likely, this broad pattern of weak labor force growth should continue."
In all, there were roughly 12.4 million working-age Canadians neither employed nor looking for a job for a variety of reasons in January, a 2.7% rise on a year earlier. The proportion of the population aged 15 and older who were employed for the month dipped 0.1 percentage points, to 60.8%.
Weakness was most apparent in manufacturing and in Ontario, the country's industrial heartland and home to the bulk of the automotive industry.
There were roughly 28,000 fewer people employed in manufacturing in the latest month, and across Ontario there was a drop in employment of about 67,000. Job numbers also fell in education services and public administration.
Bank of Canada Gov. Tiff Macklem in a speech this week said the country faced deep structural changes, citing the end of the era of rules-based open trade with the U.S. and the potential of artificial intelligence looming. He said businesses are likely to be cautious in their hiring this year.
"Many of the themes facing the labor market in recent years will likely persist into 2026, and they aren't all positive. Without an economic spark on the horizon to kickstart hiring, and sectors like manufacturing taking another hit in January, we're treading water for the time being," Brendon Bernard, senior economist at job site Indeed, said.
Write to Robb M. Stewart robb.stewart@wsj.com
(END) Dow Jones Newswires
02-06-26 1221ET
