Despite job losses, shrinking labour force lowers unemployment rate in January

OTTAWA — Fewer people were looking for work in January, driving the unemployment rate lower despite job losses in the month, Statistics Canada said Friday.

The agency said the economy shed 25,000 jobs in January, compared to economists’ expectations for a slight gain.

Desjardins economist Kari Norman said the January labour force survey marks a “bit of a U-turn” for the economy, which had steadily added jobs across the previous four months.

January’s job losses mostly came from the private sector and part-time work, and were largely concentrated among women aged 25 to 54.

Ontario bore the weight of the losses last month, particularly in the manufacturing sector.

StatCan said manufacturing shed 28,000 positions in January and is down roughly 51,000 jobs from a year earlier – before U.S. tariffs hampered the industry.

Also seeing losses were the education sector and the professional, scientific and technical services industry. There were some gains in the information, culture and recreation sector and the business, building and other support services industries to offset the losses.

Average hourly wages rose 3.3 per cent annually last month, a tick below December’s levels.

The unemployment rate fell from 6.8 per cent in December because fewer people were looking for work in January, StatCan said.

The latest job figures partially reflect Canada’s stalled population growth.

Norman said that with the federal government tamping down the flow of immigration, newcomers are not filling out Canada’s labour pool at the same pace as recent years.

That trend started among youth aged 15 to 24 with the declines in international students coming to Canada, but the drop-off in new entrants to the labour force is starting to show up in “core” workers aged 25 to 54 as well, she said.

Bradley Saunders, North America economist at Capital Economics, said in a note to clients that January’s 119,000-person decline in the size of the labour force was the largest drop in five years.

He said that “collapsing population growth” means the economy doesn’t need as much job creation to keep the unemployment rate steady each month. He expects further declines in the jobless rate this year.

There were 12.4 million people aged 15 and older outside the labour force in January, according to the agency, up 2.7 per cent year-over-year.

Of those, 34,000 people, or 0.3 per cent, were deemed discouraged workers – those who don’t believe there’s work out there that fits their skills. This proportion is up a tenth of a percentage point from a year ago.

StatCan said the unemployment rate for young workers aged 15 to 24 dropped half a percentage point in January as fewer youth searched for work. The share of youth who reported their main activity as attending school was up 2.2 percentage points year-over-year.

Norman said these trends might reflect a tough job market for young workers over the past year.

“(It’s) very logical for young adults to stay in school or go back to school and get a second degree or diploma when the job market is tough,” she said.

StatCan’s additional surveys last month suggested a growing share of workers in industries dependent on U.S. trade are considering a career move in the coming year.

Some 5.4 per cent of permanent core-aged employees in sectors reliant on U.S. demand for Canadian exports were planning to leave their jobs in the next year, up 1.5 percentage points year-over-year.

Bank of Canada governor Tiff Macklem said in a speech Thursday that he expects an “uneven” recovery in the labour market this year as some sectors and occupations see gains but others face slower improvement.

Norman said many businesses will likely be watching the upcoming review of the Canada-U.S.-Mexico trade agreement for signs of clarity on the tariff front before making major hiring decisions.

The Bank of Canada held its benchmark interest rate steady at 2.25 per cent last week. Its next decision is set for March 18.

TD Bank senior economist Andrew Hencic said in a note that, despite the job losses, the falling unemployment rate “suggests the labour market is better than expected – but not necessarily tight.”

He said there is little in the January jobs numbers to move the needle for the Bank of Canada and he expects the central bank will wait longer on the sidelines for more economic data before making any further rate adjustments.

“The Bank of Canada governors have made it really clear that they don’t intend to make any changes anytime soon to the policy rates, unless there’s something that comes up that’s different than what they expect,” Norman said.

“We don’t see that today’s weaker job numbers will really impact their decisions at the next meeting.”

This report by The Canadian Press was first published Feb. 6, 2026.

Craig Lord, The Canadian Press