The Canadian labour market is showing signs of softening, with weaker job growth and a rising unemployment rate. The January 2026 jobs report highlights a decline in private-sector employment, lower overall workforce participation, and wage growth cooling to a 3.3 per cent year-over-year rate, with significant weaknesses in the manufacturing sector.
Job Growth/Losses
In January, the economy lost 25,000 jobs, missing consensus expectations for a 5,000-job gain. Manufacturing led the decline with 27,500 jobs lost, primarily in Ontario. Education and professional services also contracted, down 24,200 and 11,200 jobs respectively.
Unemployment Rate
Despite these losses, the unemployment rate edged slightly lower to 6.5 per cent—its lowest level since 2024—driven by a significant 119,000-person drop in the workforce and a sharp decline in the participation rate to 65 per cent.
Full-Time vs. Part-Time Employment
Full-time positions increased by 45,000, but this was offset by a 70,000 drop in part-time roles.
Regional Trends
Job losses were heavily concentrated in Ontario, which saw 66,500 positions cut in January. The specific sources of these layoffs are somewhat difficult to reconcile, but key contributors included GM’s Oshawa facility, which eliminated its overnight shift on January 30, impacting 500 direct GM employees and up to 700 additional workers in its supply chain.
Algoma Steel also issued more than 1,000 layoff notices as it accelerates its transition from traditional blast furnaces to cleaner electric arc furnaces. In the federal workforce, over 3,500 employees have received workforce adjustment notices, marking the first phase of layoffs and early retirements.
Job Vacancies
Labour demand has softened considerably, with vacancies falling to 2.6 per cent of total positions. This equates to roughly 3.3 unemployed Canadians for every job opening.
Wages
Average hourly wages moderated, slowing to a 3.3 per cent year-over-year pace.
Outlook
We expect the unemployment rate to hover around 6.5 per cent throughout 2026 as economic growth remains modest and labour force expansion slows due to revised, tighter immigration targets. The January jobs report is unlikely to prompt immediate action from the Bank of Canada, which is expected to remain on hold for the foreseeable future as it monitors trade uncertainty and the impact of U.S. tariffs on the Canadian economy.
Housing Affordability Watch
CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis
Housing Minister Gregor Robertson says the federal government is working to bring banks and pension funds into affordable housing finance, but legacy public housing constraints make funding complex—and often economically unviable.
In this week’s Housing Affordability Watch, we explore how private activity bonds (PABs), direct lending and CMHC guarantees could help bridge the gap.
Read the full analysis here: No Free Lunch: The Economics of Affordable Housing
Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any person or organization in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice including investment advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication. Readers are cautioned to always seek independent professional advice from a qualified professional before making any investment decisions.
