Employment Stays Resilient, but Losing Steam

Employment rose by just 8,200 in December (0.0 per cent). The unemployment rate rose to 6.8 per cent as the labour force participation rate edged up to 65.4 per cent. On a year-over-year basis, average hourly wages increased by 3.4 per cent.

Key insights

Labour markets in 2025 performed better than most had anticipated. Despite tariff onslaughts that created a volatile economic environment and weighed on both consumer and business confidence, December’s employment figure was 1.1 per cent higher than a year ago. This resilience largely reflected the fact that, up to now, U.S. tariffs have been less restrictive than initially announced. That said, performance varied significantly across industries. Forestry and manufacturing—particularly durable goods—experienced job losses in 2025, and their outlook for 2026 remains clouded by ongoing trade uncertainty. By contrast, strong employment gains were recorded in finance, accommodation and food services, and healthcare.

Our labour market outlook for 2026 remains subdued. Persistent trade tensions with the United States, alongside the renegotiation of CUSMA—which may extend into 2027—will continue to weigh on goods-producing sectors. Nevertheless, we anticipate steady employment gains in the first half of the year as business confidence gradually improves, before momentum softens in the second half of 2026.

Canada’s population growth slowed sharply last year. Outside of the pandemic period, the country recorded its first quarterly population decline between July and September 2025, a trend we expect to persist through 2027 in line with federal and provincial migration targets. This slowdown will result in a net decline in non-permanent residents, particularly international students and temporary foreign workers. We expect this to begin constraining employment growth from mid-2026 onward, as some sectors face increasing difficulty filling vacancies. Industries that have performed well to date—such as finance and accommodation and food services—are likely to be among those affected.