Key Takeaways
- The Canadian labor market reported 84,000 job losses, a second consecutive monthly decline.
- The private sector drove the bulk of the weakness with 73,000 job losses.
- The unemployment rate edged higher to 6.7% from 6.5% the previous month.
Canada’s labor market saw a second consecutive month of surprise job losses and higher unemployment, signaling a marked deterioration in the labor market that analysts say will force the Bank of Canada to look through the mounting oil shock from the Iran war.
According to the latest Statistics Canada report, the economy shed 84,000 jobs in February, following a 25,000 jobs decline in the previous month, and significantly worse than the FactSet estimate of 4,000 job gains for the month.
The largest drop recorded in four years, the steep decline was led by a loss of 73,000 jobs in the private sector. The month saw a contraction of 108,000 full-time jobs, offsetting gains over the previous two months. But a small gain in part-time work softened the blow to a net loss of 84,000 total jobs.
The report also noted a rise in the unemployment rate, to 6.7% from 6.5% the month before, higher than the FactSet estimate of 6.6%.
The labor market double whammy comes at a time when the Bank of Canada, already faced with stagnant economic growth, is preparing to meet on March 18 amid mounting energy inflation caused by the Middle East conflict.
The S&P/TSX Composite Index fell by over 104 points to 32,733.06, following the latest jobs data. The 2-year government of Canada bond yields dropped 0.10 percentage points to 2.72%, while the Canadian dollar slid nearly 0.60% to C$1.37 against the US dollar, or 72 US cents.
The contrarian forces of rising inflationary pressures and a weakening job market could make it particularly challenging for the Bank of Canada to pick its policy direction. The Bank has left interest rates on hold since December, after cutting them by a cumulative 100 basis points last year. At its current 2.25%, the policy rate stands at the bottom of the central bank’s neutral range of 2.25% to 3.25%, where it neither stimulates nor restricts the economy.
Below are excerpts from economists’ commentary on the February jobs report.
The Weak Report Rules Out a Rate Hike
“No sense sugarcoating this one—this is simply a brutal result, and the near absence of net job growth in the past year is perhaps the most telling reading here. While a tough winter may have exaggerated the weakness at the start of the year, and a shrinking labor force is also weighing heavily on headline employment, the underlying story so far in 2026 is one of weakness.
“A range of other indicators for January, including a 3% drop in manufacturing sales, reinforces the point that the economy stumbled out of the gate this year. And now the economy has to contend with higher energy costs flowing from the Iran conflict. Somehow, the market continues to price in Bank of Canada rate hikes for later this year, but if this employment report is at all indicative of underlying economic conditions, the last thing the Bank would be considering would be rate hikes.”
—Doug Porter, chief economist at BMO Economics
A Rate Cut Still Not Off the Table
“This data will throw cold water on market hawks who had priced in a chance of Bank of Canada hikes this year prior to the data, and we continue to expect no move from the Bank of Canada this year. However, in terms of risks, a cut is more likely than a hike if the Bank of Canada were to have to move this year. We will need to see progress on reducing trade uncertainty in order to see a sustained improvement [in] the labor market.
“The Canadian labor market took a turn in February. The job losses were widespread across industries, with service-producing industries losing 56K jobs and goods producers shedding 28K positions. Overall, this is clearly a very worrisome report for the Bank of Canada that shows that labor market slack has increased and activity is frozen amidst trade uncertainty.”
—Katherine Judge, senior economist at CIBC Economics
A Weak Labor Report Offsets Energy Inflation Case for Rate Hike
“The rebound in the unemployment rate to 6.7% in February supports our view that, despite the surge in oil prices, the Bank of Canada will be reluctant to discuss a potential return to rate hikes this year.
“With the participation rate now at its lowest in five years, at least a partial rebound should be on the way. Nevertheless, we expect the broader pattern of sagging labor force growth to continue now that the population scaler used in the Labor Force Survey is finally capturing the collapse in immigration. This is why we expect the unemployment rate to continue to trend downward this year despite a weak economic backdrop.”
—Bradley Saunders, North America Economist at Capital Economics
The Labor Market Slack Overrides Energy Inflation
“It’s been a brutal start to the year for Canada’s labor market. The weakness was widespread across industries. Both the contraction in jobs and hours worked were the most pronounced since early 2022.
“The recent spike in oil prices still has the market pricing more than one full rate hike for the Bank of Canada this year. However, given the deterioration in labor market conditions and the severe woes in regional housing markets, we believe that central bankers will largely look through the impacts of higher energy prices in the near term.”
—Royce Mendes, managing director and head of macro strategy at Desjardins Capital Markets
Job Losses Not Enough to Justify a Rate Cut
“Today’s weak jobs data will likely raise some alarm bells at the Bank of Canada, but we don’t think it’ll be enough to sway the Bank of Canada to cut rates on March 18. Elevated trade policy and geopolitical uncertainty will likely keep the Bank of Canada on the sidelines for now, but the odds of a rate cut would increase if the labor market or economy worsens significantly.”
—Tony Stillo, head of Canada economics at Oxford Economics
Job Market Volatility Masks Macroeconomic Improvement
“Monthly employment prints are volatile, and headline job growth remains partly distorted by sharply slower population and labor force growth, driven by retirements and government curbs on the share of nonpermanent residents.
“Looking ahead, the macro environment—particularly a stabilizing trade backdrop thanks to preserved CUSMA exemptions, healthy domestic consumer spending trends, and continuous monetary and fiscal support—should all support a recovery in hiring demand. We look through near-term volatility, and continue to expect gradual improvements to drive the unemployment rate lower through the remainder of the year.”
—Claire Fan, senior economist at Royal Bank of Canada
Iran War Oil Shock Remains Open Risk
“This was a decidedly weak report. Undoubtedly, the report was weaker than expected, but looking through the noise shows an economy that has struggled to gain traction. Something that was to be expected given the structural changes Canada is facing.
“Looking forward, we are expecting the labor market to tread water in 2026, as a rapid slowdown in population growth drags on labor supply, and soft economic momentum limits hiring. The wild card to all of this is how big the inflation shock from the ongoing conflict in the Middle East will be. The duration of the supply disruption remains highly uncertain, but its length will impact inflation and, thereafter, consumer spending and the economy at large.”
—Andrew Hencic, director and senior economist at TD Bank
