Canadian Jobs Growth Slowed Markedly in January as the Unemployment Rate Fell Sharply to 6.5%

Today’s Canadian Labour Force Survey for January was weaker than expected. Employment declined by 24,800 (-0.1%), and the employment rate decreased 0.1 percentage points to 60.8%. This followed only a small gain in December and was the first decline in the employment rate since August 2025.

In January, a decrease in part-time employment (-70,000; -1.8%) was partly offset by a gain in full-time work (+45,000; +0.3%). Compared with 12 months earlier, overall employment was up by 134,000 (+0.6%), driven by gains in full-time work (+149,000; +0.9%).

The number of private sector employees fell by 52,000 (-0.4%) in January, partly offsetting a net increase of 128,000 (+0.9%) in the last three months of 2025. There was little change in the number of public sector employees (+13,000; +0.3%) and self-employed workers (+14,000; +0.5%) in January.

The jobless rate fell by 0,3 percentage points to 6.5% in January, driven by a decline in the number of people searching for work. The unemployment rate in January was the lowest since September 2024, down 0.6 percentage points from the recent high of 7.1% recorded in August and September 2025.

The labour force participation rate—the proportion of the population aged 15 and older who were employed or looking for work—decreased 0.4 percentage points to 65.0% in January, following an increase of 0.2 percentage points in December. The decline in January was concentrated in Ontario, the hub of the auto sector, manufacturing generally, and steel production. Recent data also show that the number of entry-level positions has fallen sharply, likely due to artificial intelligence replacing these positions.

The unemployment rate fell across most major demographic groups in January, largely reflecting declines in the number of job searchers.

Unemployment rate by age group, January 2026

Manufacturing jobs were hard hit by the tariffs and trade uncertainty. 

The number of people working in manufacturing fell by 28,000 (-1.5%) in January, bringing employment down to levels last observed in August 2025. The decline in January was concentrated in Ontario. On a year-over-year basis, overall employment in manufacturing was down 51,000 (-2.7%).

Employment change by industry, January 2026

There were also fewer workers in educational services (-24,000; -1.5%) and public administration (-10,000; -0.8%) in January. Employment in both industries was little changed year over year.

On the other hand, employment increased in information, culture and recreation (+17,000; +2.0%) in January, continuing an upward trend that began in September 2025. On a year-over-year basis, employment in this industry was up 30,000 (+3.6%) in January.

Employment also rose in business, building and other support services (+14,000; +2.1%) in January, the first increase since October 2024. Employment in this industry had previously followed a downward trend through most of 2025. Compared with 12 months earlier, employment in business, building and other support services was down 38,000 (-5.3%) in January.

Bottom Line

The Bank of Canada has reiterated that its primary mandate is price stability, effectively leaving the task of closing the output gap to fiscal authorities. Fiscal support delivered through large capital-spending projects will be implemented too slowly to materially offset near-term weakness in activity. If layoffs persist at their recent pace and the United States were to withdraw from the Canada‑US‑Mexico Agreement, the case for an additional round of monetary easing would strengthen markedly.

Absent that downside scenario, the more plausible path is a slow and limited normalization of policy. Market pricing currently anticipates that the next move by the Bank of Canada will be to raise the overnight policy rate, but this is unlikely until 2027. If labour force weakness and higher mortgage costs associated with this year’s huge volume of mortgage renewals, in combination with AI-induced job losses, weaken the economy, the Bank of Canada might be willing to cut the overnight policy rate later this year. Uncertainty has already markedly weakened the housing market, despite the reduction in home prices and mortgage rates over the past year.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

I just returned from a mortgage conference with some of the best in the industry, and while most people were talking about whether we’d see another rate reduction by the Bank of Canada or stay the course (including me), we had experts share a “thought experiment” that could change the game for an entire generation: The 50-year amortization.

I know what you’re thinking: “That’s way too much interest!” But let’s look at the reality of the Canadian market in 2026.

The Barrier to Entry is a Wall The average first-time homebuyer is now 40 years old. In our major cities, nearly 7 out of 10 buyers require a “gift” from their parents to even qualify—often to the tune of $100k to $300k. homeownership is becoming a “members only” club for those with generational wealth.

Rent is 100% Interest The biggest objection to a 50-year mortgage is the interest cost over time. But we rarely apply that same logic to the rental market. If you rent for 50 years, you have paid 100% interest and own 0% of the asset.

A 50-year mortgage isn’t a life sentence; it’s an on-ramp. It provides the lowest possible monthly payment during the years when life is most expensive—when you’re starting a career or raising a young family.

The Forced Savings Advantage We are living in a “K-shaped” economy. Homeowners are statistically 6 to 7 times wealthier than renters because a mortgage is a forced savings vehicle.

• Equity as a Safety Net: Homeowners can tap into equity to consolidate high-interest debt. Renters are stuck with high-cost credit cards and no leverage.
• Tax Efficiency: The principal residence exemption remains the best tax-free wealth builder in Canada.

A New Tool for a New Reality Back in the 80s, our parents dealt with 18% interest rates, but their homes cost 3x their annual salary. Today, homes are 10x our salary. The old rules don’t work for the new reality.

A 50-year amortization would allow young professionals to get into the market at 25 instead of 45. They could make lump-sum payments as their income grows, increase their frequency, or re-amortize at renewal.

The goal isn’t to stay in debt forever—it’s to get in the door. Because you can’t build a legacy on a rental receipt.

What’s your take? Is it time we stop letting “optics” get in the way of access? I’d love to hear your thoughts.