Key Takeaways
- The Canadian labor market reported 14,000 job gains, a rebound from two months of losses.
- The economy remains vulnerable to the effects of the Iran war and tariff uncertainty, analysts say.
- The unemployment rate held steady at 6.7%.
The Canadian economy saw modest job gains in March, reversing the declines of the previous two months. But the figures are unlikely to alter the Bank of Canada’s interest rate path amid energy inflation and trade uncertainty, according to analysts.
According to the latest Statistics Canada report, the economy added 14,000 jobs in March, marking the first time employment numbers grew this year, and beating the FactSet estimate of 10,000 job gains for the month.
The report also noted that the March unemployment rate remained unchanged at 6.7%, just below the 6.8% FactSet consensus estimate.
Employment gains were primarily led by the other services industry, which includes personal (such as laundry and hair care) and automotive and industrial machinery repair services. The industry added 15,000 jobs in March. There was also some strength in natural resources, which added 10,000 jobs. These gains were somewhat offset by declines in finance, insurance, real estate, rental, and leasing.
The numbers indicate persistent weakness in the labor market at a time when the fragile economy, already weighed down by US tariffs, now finds itself dealing with energy inflation caused by the Iran war.
The S&P/TSX Composite Index edged 0.88 percentage points higher to 33,771.30 following the latest jobs data. The two-year government of Canada bond yield dropped 0.11 percentage points to 2.78%, while the Canadian dollar remained steady at C$1.38 against the US dollar, or 0.72 US cents.
The Bank has kept its policy rate on pause since December, after cutting rates by a cumulative 1 percentage point last year. At its current 2.25%, the policy rate stands at the bottom of the central bank’s neutral range of 2.25%-3.25%. The neutral rate is a theoretical marker at which monetary policy neither stimulates nor restricts the economy.
Below are excerpts from economist commentaries on the March jobs report.
Higher Wages Were the Only New Development
“For a refreshing change, the employment results were no big surprise in March, and the big-picture takeaway is that job growth has been quite modest over the past year—but so, too, has been the growth in the available labor force, holding the unemployment rate steady. The only really new news here is that wages seemingly popped, which the Bank of Canada will keep an eye on, particularly as it is already on high alert for signs of any spillover from higher energy prices to broader inflation.”
—Doug Porter, chief economist at BMO Economics
A Weaker Job Market Will Help Contain the Spread of Energy Inflation
“Overall job growth was driven by part-time positions, with full-time work unable to recoup any of the ground lost in the prior month. Despite general softness in most labor market indicators recently, hourly wage growth for permanent employees accelerated sharply, to 5.1%, although that partly reflected base effects from a year ago, and the year-over-year rate should ease again in the months ahead. “The Canadian labor market still appears quite weak, which should limit the ability of the current oil price shock to widely spread into broader inflationary pressures, enabling the Bank of Canada to hold interest rates at their current level throughout 2026.”
—Andrew Grantham, senior economist at CIBC Economics
The Bank of Canada Will Hold Rates Until 2027
“March’s uneventful Labor Force Survey, paired with the drop back in oil prices in recent days, supports our view that the Bank of Canada will be content to wait until next year to change policy.
“We also learnt that the population rose by 11,200 in March, which, while historically weak, was its fastest pace in four months. With the participation rate again unchanged at 64.9%, the resulting 15,100 rise in the labor force was enough to match the faster pace of employment growth, keeping the unemployment rate unchanged at 6.7%. Consequently, we see little in today’s release to sway our view that the Bank of Canada will wait until next year to hike rates—especially if reduced hostilities in the Middle East continue to weigh on oil prices.”
—Bradley Saunders, North America economist at Capital Economics
The Report Doesn’t Move the Needle on Interest Rates
“After a string of job losses to begin the year, Canada’s labor market showed some signs of stabilization in March. Overall, there’s nothing in this report to suggest that the economy is perking up. Despite upgrading our oil price forecasts, we continue to believe that central bankers will remain on the sidelines for the remainder of this year, given the persistent slack in the economy.”
—Royce Mendes, managing director and head of macro strategy at Desjardins Capital Markets
Headwinds From the Trade and Iran War Uncertainty Loom
“The outlook for Canada’s job market depends on a resolution to the US/Israel-Iran conflict that sees energy prices retreat, and the outcome of the USMCA review—both of which are highly uncertain. A range of indicators continues to suggest there’s excess slack in the labor market, which lessens the risk of higher energy prices leading to persistently higher inflation and the need for interest rate hikes. We think the Bank of Canada will remain on the sidelines for now, but it has left the door open to adjust rates in either direction.”
—Michael Davenport, senior economist at Oxford Economics
Slower Population Growth Helps Stabilize the Unemployment Rate
“While monthly Labor Force Survey data are volatile, the pattern points to firms facing softer demand alongside persistently elevated labor costs. At the same time, slower population growth is starting to have an impact. Reduced immigration means fewer jobs are needed to stabilize the unemployment rate, quietly easing labor‑supply pressures that have weighed on the market over the past year.
“We expect labor conditions to improve modestly rather than rebound sharply. Risks remain, particularly if higher energy prices tied to the Middle East conflict prolong inflation pressures and restrain hiring in rate‑sensitive sectors. Still, we expect the unemployment rate to drift lower toward roughly 6.5% by year‑end.”
—Ashish Dewan, senior investment strategist at Vanguard Canada
