Canada’s total employment rose by 76,000 jobs to start off 2025, following a gain of 91,000 in December. This marks the second consecutive month of at least a 0.4% increase in employment month-over-month.
The spike caught many economists off guard, with RBC economists expecting only a modest increase of 15,000 jobs, while Scotiabank’s Derek Holt had projected a range of 15,000 to 76,000.
Bond yields rose to 2.75, up by 0.12, or 4.63%, while the Canadian dollar appreciated in response to the better-than-expected data.
According to Statistics Canada, the country’s unemployment rate ticked down by 0.1% to 6.6%, while the labour force participation rate surged to 65.5%, up from 65.1%.
“Three consecutive months of solid job growth suggests the cyclical boost to Canada’s economy from lower interest rates is clearly taking effect,” writes TD Economics’ Leslie Preston in a research note.
Of the gains, 35,200 were full-time positions, Statistics Canada reported. Additionally, total hours worked saw a healthy increase of 0.9% month-over-month.
Canada’s youth aged 15 to 24 saw a strong boost in employment, with 31,000 more jobs added, a 1.1% increase. According to Statistics Canada, the youth employment rate also rose by 0.6 percentage points to 54.5% in January, the first increase since April 2024.
The sectors leading job growth last month included manufacturing (+33,000 jobs), professional, scientific and technical services (+22,000 jobs), construction (+19,000 jobs), and accommodation and food services (+15,000 jobs).
While the increase in employment is significant, economists caution that the potential threat of a trade war casts a shadow over the positive news.
“If we weren’t all absorbed with the possibility of a trade war, we would be talking about the comeback in the Canadian domestic economy in recent months,” writes BMO economist Douglas Porter.
In its release, Statistics Canada highlighted that the manufacturing sector, which added 33,000 jobs this month, represents 8.9% of total employment in the country. This makes it “particularly susceptible to changes in tariffs and foreign demand,” the agency noted.
Statistics Canada also noted that approximately 641,000 manufacturing jobs, or 39.4% of the sector, depend on U.S. demand for exports from Canada.
TD‘s Preston notes that Bank of Canada interest rates are now low enough that they are no longer a drag on the economy.
“Now it is over to Canadian governments to do what they can to improve the competitiveness of the economy in the face of the tariff threat,” she wrote.
BMO’s Porter echoes the concern. “Alas, we still need to contend with the lingering uncertainty on the trade front, which casts a cloud over these sunny jobs figures,” he wrote. “For the Bank of Canada, there is little here crying out for further near-term rate relief, but the clear and present trade risks will keep rate-cut hopes alive.”
Job numbers south of the border in the U.S. also saw an increase, though slightly below expectations. Total non-farm payroll employment rose by 143,000 in January, just under the anticipated 170,000 new jobs.
As a result, the U.S. unemployment rate edged down to 4.0%, its lowest level in eight months.
TD Economics’ Thomas Feltmate sees the latest numbers as signalling that “hiring momentum was even stronger than previously expected at the end of last year,” averaging 204k jobs per-month in the fourth quarter.
However, like Canada, tariff threats remain a key factor influencing policy decisions in the U.S., especially with inflation progress stalling in recent months and heightened uncertainties about how far the new administration will go with the trade war.
“With inflation progress having stalled in recent months and heightened uncertainties on how far the new administration will go on tariffs, the Fed is likely to remain more cautious on rate cuts and hold the policy rate steady until sometime this summer,” he wrote.
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Last modified: February 7, 2025
