Canada’s Jobs and Unemployment Rate Likely Ticked Higher in February

Canadian Employment Outlook

The Canadian economy's performance at the start of 2026 will be under scrutiny with the release of February's Labour Force Survey next Friday, alongside January's international merchandise trade report on Thursday. Market consensus suggests a mild expansion in the job market, but with a potential uptick in unemployment.

Economists project employment to have risen by 10,000 in February. Simultaneously, the unemployment rate is expected to climb to 6.7%, a slight increase from January's 6.5%. This adjustment reflects a partial rebound following a notable decrease in the labor force participation rate observed in January.

Analyzing Recent Labor Market Trends

The surprising decline in the unemployment rate in January, dropping from 6.8% in December, occurred despite a reduction of 25,000 jobs. This anomaly was attributed to a significant contraction of 119,000 in the labor force, influenced by both slowing population growth and the most substantial decrease in the labor force participation rate (-0.4 percentage points) since January 2022.

The concurrent fall in employment and the unemployment rate might seem counterintuitive. However, historical data indicates such occurrences are not entirely uncommon, particularly during periods of stable or improving labor market conditions. Since 2000, there have been 13 months where employment and the unemployment rate decreased simultaneously, highlighting the inherent volatility in Labour Force Survey data.

Furthermore, unprecedented deceleration in Canada's population growth, stemming from imposed limits on temporary resident arrivals, could amplify the frequency of this phenomenon. A shrinking labor force reduces the number of new jobs needed to drive the unemployment rate lower.

Trade and Inflationary Pressures

The anticipated increase in February's unemployment rate is expected to partially offset the previous decline, maintaining a gradual downward trajectory from the recent peak of 7.1% recorded in September. Wage growth figures will also be closely monitored for indications of a continued moderation in pay increases. The year-over-year average hourly wage growth has been trending downward, aligning with broader survey results.

Turning to trade, Canada's merchandise trade balance for January is projected to reveal a deceleration in both exports and imports, following robust figures observed in late 2025. The surge in energy prices during January likely played a significant role in shaping the trade balance, given Canada's standing as a major energy exporter. Simultaneously, motor vehicle production appears to have softened early in the year, aligning with advance manufacturing indicators from Statistics Canada. However, a December surge in production could translate to increased exports in January.

Looking ahead, the U.S. inflation report for February will offer further insights into North American price trends. Headline inflation is projected to register at 0.3% month-over-month, pushing the year-over-year rate slightly higher to 2.5%. Core inflation growth is expected to remain steady at 2.5% year-over-year and 0.3% month-over-month.