(Feb 7): Canadian businesses appeared to be on a hiring spree even as a tariff war loomed large at the start of the year.

Employment rose by 76,000 in January, bringing the jobless rate down 0.1 percentage points to 6.6%, Statistics Canada reported on Friday. Economists in a Bloomberg survey were expecting a smaller increase of 25,000 jobs with the unemployment rate rising to 6.8%.

The Canadian economy has been adding above-average numbers of jobs since November. Over the past three months, employment gains totalled 211,000 positions, with increases in both full-time and part-time work. That marks the largest gain over a three-month period since early 2023.

But the apparent jobs boom may not prevent the Bank of Canada from cutting interest rates further this year. The recent wave of hiring likely won’t be enough to placate concerns that the potential Canada-US trade war could plunge the economy into a recession. Still, traders in overnight swaps eased expectations for a cut at the March 12 meeting to about 60% from close to 80% previously.

The data were released at the same time as US non-farm payrolls, which increased by 143,000 in January as the unemployment rate was 4%. The loonie reversed the day’s loss against the US dollar, trading at C$1.4300 as of 8.34am in Ottawa. Canada’s two-year yield rose some seven basis points to the session’s high of 2.65%, with Canadian debt underperforming US and developed markets.

Policymakers have slowed down the pace of rate cuts and signalled that they’re not certain about the future path of easing due to the uncertainties around President Donald Trump’s plans. Economists expect joblessness to rise during a tariff battle, which is now paused until next month. A few Canadian companies have already announced job cuts in recent days, citing tariff threats.

Employment increases in January were led by manufacturing, a sector that has the largest number of jobs dependent on US demand for Canadian exports and accounts for 8.9% of Canada’s total employment. An estimated 641,000 jobs in the sector, or nearly 40%, depend on the ability to export goods to the US.

Professional services, construction and accommodation and food services also added jobs.

“The report confirms that the labour market has been solid in recent months and has more momentum than initially thought. However, the question is how much the sharp increase in uncertainty due to the threat of tariffs could change that,” Charles St-Arnaud, chief economist at Alberta Central, said in an email. 

Andrew Grantham, economist at Canadian Imperial Bank of Commerce, said the report is “clearly” very positive. 

“However, even after the improvement seen during the past two months, the unemployment rate is still only just back to where it stood in October, and is still consistent with a labour market with plenty of slack. We continue to think that even lower interest rates will be needed for the economy to fully absorb that slack, particularly given heightened trade uncertainty which could impact hiring decisions ahead,” Grantham said in a report to investors.

The drop in the unemployment rate in January was the second consecutive monthly decline from a recent peak of 6.9% in November. The total number of unemployed people was little changed at 1.5 million. Among those who were jobless in December, 65.4% remained unemployed in January, compared with a 61.7% share a year ago. That suggests Canadians are facing more difficulties in finding jobs despite recent employment growth.

The employment rate — the proportion of the working-age population that’s employed — rose 0.1 percentage points to 61.1% in January. That’s the third straight monthly increase, a stark difference from a period between April 2023 to October 2024 when the employment rate dropped 1.7 percentage points as population growth outpaced job gains.

Regionally, employment increased in Ontario, British Columbia and New Brunswick. It was little changed in other provinces.

Yearly wage growth for permanent employees decelerated to 3.7%, versus economist expectations of 3.8% and down from an upwardly revised 3.8% in December.

Total hours worked rose 0.9% last month, also starting the year on a strong footing.

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