Canada: Surprise Drop in February Employment Gives the BoC Reason to Stay on the Sidelines

Canadian employment fell by 84k in February, following a decline of 25k in January. Taken together, these back-to-back drops unwind much of the strength in hiring seen last fall. Job losses were concentrated in full-time employment (-108.4k) while part-time jobs increased in the month (+24.5k) (graph 1). This was the largest monthly loss of full-time jobs since January 2009, outside of the pandemic. Employment losses were widespread, most notably in wholesale and retail trade (-18k); information, culture and recreation (-12k); and construction (-12k). The brunt of the impact was felt in Quebec External link., where employment fell by 57.3k jobs (a new off-pandemic record) and the unemployment rate rose 0.7 ppts to 5.9%, though it remained below the peak of 6.2% observed in June 2025.

Average wage growth reached 3.9% y/y in February, up from 3.3% in January. This was the fastest pace since late 2024. Cumulative gains in hourly wages in both the goods- and services-producing sectors have outpaced total CPI increases since the start of the pandemic (graph 2). That said, the February acceleration in wage growth may be function of compositional employment changes related to the drop in jobs.

Despite the sharp drop in employment, the unemployment rate increased by a relatively modest 0.2 ppts to 6.7%. This was in part due to a 0.1 ppts drop in the participation to 64.9%—it’s lowest level since 2021. The unemployment rate for core-aged workers ticked up 0.2 ppts to 5.7% in the month. Among youth it rose more sharply—up 1.3 ppts to 14.1%. This occurred despite the youth population in Canada declining by 36k since last summer.

In recognition of International Women’s Day, Statistics Canada highlighted women’s employment across the country. The employment rate for women in February was highest in PEI and Quebec, at 86.6% and 83.6%, and lowest in Ontario at 78.5%. This aligns with our recent work External link. on the role of available and affordable childcare in supporting women’s employment.

With the risk of renewed inflation from higher oil prices External link., market expectations have moved from pricing in rate cuts to hikes in Canada. However, the weak jobs data to start the year should help to take pressure off the Bank of Canada (BoC) to get ahead of this highly uncertain and potentially temporary supply shock. The BoC also has the downside risks posed by the Canada‑United States‑Mexico Agreement External link. (CUSMA) review front of mind. As such, we continue to expect the Bank to keep policy rates on hold in the near term.