Key Takeaways
- The Canadian labor market has recorded its fourth consecutive month of consensus-beating job gains.
- The addition of 8,200 jobs marks a sharp deceleration from previous months, but it’s better than the forecast decline.
- The unemployment rate reversed last month’s contraction to edge back up to 6.8%.
Canada’s labor market saw a sharp contraction following three months of solid job growth, adding 8,200 jobs in December 2025. The numbers came in lower than the 54,000 jobs in November 2025, but it was still better than FactSet estimates of 5,000 losses for the month.
While modest, this marks the fourth consecutive month of job growth for the Canadian labor market.
According to Statistics Canada’s December Labor Force Survey, the unemployment rate jumped to 6.8% from 6.5% the previous month, surpassing the 6.7% FactSet estimate and highlighting lingering slack in Canada’s labor market.
The S&P/TSX Composite Index rose 146 points to 32,495.64 following the release. Two-year government of Canada bond yields remained unchanged at 2.569%, while the Canadian dollar slipped 0.13% to C$1.38 against the US dollar, or 0.72 US cents.
This is one of two key economic indicators, alongside the CPI report due out Jan. 19, that the Bank of Canada will weigh ahead of its first meeting of the year on Jan. 28.
Analysts say that persistent labor market weakness confirms their view that the market remains fragile despite robust gains in previous months. However, there’s a broad consensus that December’s data rules out a hike but also doesn’t justify a rate cut.
The Bank cut its policy rate four times last year before deciding in its December meeting to leave it unchanged at 2.25%, at the bottom of its neutral range of 2.25%-3.25%.
Below are excerpts from economist commentaries on the December jobs report.
This Bolsters the View That Interest Rates Won’t Move This Year
“Following massive swings in the prior six months (mostly on the strong side of the ledger), today’s ho-hum report likely has a better grasp on reality. We had been deeply skeptical of the outsized employment gains in prior months, but the real shock had been the steep decline in the unemployment rate in the fall. Today’s results largely address both of those questions, taking the jobless rate back up a bit above year-ago levels and shaving job gains to a more realistic pace (and especially so for hours worked). Having said that, the moderation in December is not soft enough to stir much interest for the Bank of Canada—but it also should quiet down some of the chatter over potential rate hikes later in 2026, supporting our view that the Bank will be on hold this year.”
—Doug Porter, chief economist at BMO Economics
Considerable Slack Remains in the Labor Market
“The Canadian labor market continued to add jobs in December, albeit not enough to keep pace with the rate of labor force growth during the month. Employment rose by 8K, which was better than consensus expectation for a marginal decline. However, a three-tick improvement in participation rate during the month meant that the unemployment rate increased slightly higher than expected by the consensus.
“With more people once again looking for work, today’s unemployment rate suggests that plenty of slack remains in the labor market. We continue to expect no change in the Bank of Canada’s overnight rate through 2026.”
—Andrew Grantham, senior economist at CIBC Economics
December Report Weakens the Rate Hike View
“The 0.3 point rebound in the unemployment rate to 6.8% last month was mostly due to the unwinding of temporary moves which had pulled it down the month prior. With private sector hiring also flat last month, December’s Labor Force Survey works against the view of some that the Bank of Canada will eventually return to rate hikes later this year.
“Paired with the smaller employment gain, this pushed the unemployment rate back up to 6.8%, almost entirely reversing November’s surprise drop to 6.5%. This will help to quash the idea borne out of recent stronger Labor Force Surveys that the Bank of Canada could return to hiking its key policy rate later this year.”
—Bradley Saunders, North America economist at Capital Economics
Soft Hiring and Higher Unemployment Eliminate Rate Hike Prospects
“That deterioration was mostly due to an increase in people looking for work, with the participation rate rising to 65.4% from 65.1%. That’s obviously a much better driver of the unemployment rate than job losses. There’s clearly more slack in the economy than was indicated in the November Labor Force Survey.
“Markets are little changed after the release of this data. While hiring was soft and the unemployment rate rose, the survey wasn’t weak enough to alter expectations for the Bank of Canada. Central bankers are likely to reiterate that they believe the current interest rate setting is still ‘at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment’.”
—Royce Mendes, managing director and head of macro strategy at Desjardins Capital Markets
Bank of Canada Likely to Stand Pat Throughout the Year
“Canada’s job market stalled in December. Despite volatility in the unemployment rate and the pickup in job growth in late 2025, it’s clear labor market slack persists. We expect layoffs in early 2026 as the economy struggles to grow amid ongoing trade policy uncertainty, US tariffs, and weak domestic demand. However, the unemployment rate will likely only briefly rise just above 7% early this year before renewed modest job creation and a shrinking population quickly lower it.
“Today’s labor market data is unlikely to change the Bank of Canada’s view that interest rates are at an appropriate level to support the economy, given upside risks to inflation from the trade war and elevated uncertainty. We still expect the Bank of Canada to remain on hold though 2026, before hiking again in early 2027.”
—Tony Stillo, head of Canada economics at Oxford Economics
Jobs Data Unlikely to Sway Bank of Canada to Cut Rates
“After a string of upside surprises, the Canadian labor market gave back some of its gains in December, with job growth effectively petering out, and the unemployment rate ticking higher as more people started looking for work. In a noisy data series, this is not all that surprising and remains in line with our view that the labor market is not yet out of the woods.
“This report is unlikely to move the needle for the Bank of Canada. There is still slack in the labor market, but uncertainty about the supply side of the economy and the risk to inflation means they are unlikely to tip the policy rate into accommodative territory.”
—Andrew Hencic, director and senior economist at TD Bank
