Construction workers on a new condo site in Saint John, N.B. The number of participants in the Canadian labour market fell by 119,000 in January.Graham Hughes/The Canadian Press
The Canadian economy shed almost 25,000 jobs in January as the ailing manufacturing sector and Ontario sustained big employment losses to start the year.
Despite the hit, the unemployment rate fell to 6.5 per cent in January – the lowest level in 16 months – because fewer people were active participants in the labour market, Statistics Canada said Friday in a report. Economists had expected the jobless rate to hold steady at 6.8 per cent.
The job market has been under severe stress over the past year, owing to the U.S.-driven trade war, resulting in layoffs in industries targeted by tariffs, including steel and autos.
Moreover, many companies are hesitant to hire new employees because of economic uncertainty, particularly with this year’s review of the United States-Mexico-Canada Agreement on trade.
The job market rebounded sharply in the fall but started 2026 on a sour note. The manufacturing industry shed 28,000 workers in January, while Ontario lost a whopping 67,000 positions.
Still, full-time positions jumped by 45,000 last month, and the damage was largely contained to Ontario, with Alberta posting a jobs increase of 20,000.
“This report is the proverbial mixed bag,” Bank of Montreal chief economist Doug Porter said in a client note.
Mr. Porter said the jobs report was consistent with an economy that is adjusting to three structural changes at once: U.S. tariffs that have hit manufacturing, the slowdown in population growth and the rapid rise in the population over age 65 (who are exiting the work force). The final two factors, he said, are taking pressure off the unemployment rate.
Canada’s population declined in the third quarter of 2025 by the most on record, after almost a year of near-zero growth, because of tighter immigration restrictions to curb the number of temporary residents. This shift is weighing on the pool of available workers.
The number of labour force participants – who are either working or actively searching for a job – fell by 119,000 in January alone. When someone is no longer part of the labour force, they are not counted toward the unemployment rate, which is why the rate can decline even as the economy sheds jobs.
“Population aging, and other socioeconomic changes such as trends in school enrolment and labour market conditions can have an impact on labour force participation,” Statscan said on Friday.
Macklem says economy undergoing structural change, plays down chance of further rate cuts
Toronto-Dominion Bank senior economist Andrew Hencic said in a Friday morning note that the decline in the labour force is a trend to watch. “Canada’s population is expected to shrink in 2026, meaning a smaller pool of available workers. Under these conditions, the unemployment rate can continue to fall even if Canada is losing jobs.”
A recent report from TD Bank economists said that while the job market had been improving, based on data from Statscan’s Labour Force Survey, other metrics suggested the situation was more subdued. The job vacancy rate – the number of available jobs as a percentage of total labour demand – was 2.6 per cent in November, a significant decline from a peak of 5.7 per cent in early 2022, still near the height of the COVID-19 pandemic.
There could be more pain in store for Ontario manufacturing.
Stellantis NV, which has assembly plants in Brampton and Windsor, took a $US26-billion writedown on Friday over failed bets on the electric vehicle transition, the largest writedown of the Big Three automakers. Stellantis announced in October that it would shift production of the Jeep Compass EV to Illinois from Brampton, putting some 3,000 jobs at risk. The Brampton plant had already been idled since late 2023 to retool for EVs, but those plans were shelved early in 2025, leaving workers in limbo.
On Thursday, Bank of Canada Governor Tiff Macklem forecast that there will be little growth in the labour force for much of 2026, so the bank is not expecting the unemployment rate to increase. He said there could be some gradual improvement in the labour market by the end of 2027.
Andrew Grantham, senior economist at CIBC Capital Markets, also called January’s employment report a “mixed bag.”
“As a result, we doubt this will have much impact at the Bank of Canada, and it doesn’t change our view that interest rates will be on hold for the remainder of this year,” he wrote.