- Laura Gu
Senior Economist
Economic News
Canada: Job Gains Fizzle Ahead of Tariff Troubles
March 7, 2025
Highlights
- Hiring stalled in Canada as tariff uncertainties loom, with only 1k jobs added in February 2025, falling short of expectations of a 20k advance. A drop in labour force participation kept the unemployment rate steady at 6.6% in February, down from a peak of 6.9% in November 2024. Total hours worked saw a notable drop of 1.3% month-over-month but were still up 0.5% year-over-year, largely due to a major snowstorm in the month of February. Average hourly wage growth edged up to 3.8% year-over-year, up from 3.5% last month but otherwise the slowest pace since May 2022. Table 1 summarizes the key data points.
- Our Q1 2025 forecast for real Canadian GDP growth is tracking 2.0% following the February employment data, in line with the forecast in the Bank of Canada’s (BoC) most recent Monetary Policy Report (MPR).
Implications
The Canadian job market softened in February after three consecutive months of strong gains, ahead of heightened risks from US tariffs on Canadian exports. Employment in Canada remained virtually unchanged in February 2025, with gains in wholesale and retail trade (+51k) and finance, insurance, real estate, rental and leasing (+16k) offset by a decline in professional, scientific and technical services (-33k) and transportation and warehousing (-23k). Most provinces experienced slight declines, offset by a moderate gain in Ontario (+17k).
Employment among youth (15 to 24 years) decreased by 8.5k, but a significant drop in labour participation led to a reduction in the unemployment rate to 12.9% from 13.6% in January. For the core-aged group (25 to 54 years), employment increased by 30.5k. However, a higher labour force participation rate as more people were looking for work caused a slight rise in the unemployment rate from 5.6% to 5.7% (graph 1). Overall, the unemployment rate remained steady at 6.6% for the labour market as a whole, well down from the 6.9% peak in November 2024.
Working-age population growth continued to slow, with younger demographics experiencing the sharpest slowing in growth due to a sustained decline in the intake of non-permanent residents External link. (NPRs). The number of new immigrants (those who arrived less than five years ago) has been declining since December of last year (graph 2). However, despite this slowdown, population is still growing at an annualized rate of 1.7% month−over−month, well above the pace needed to meet the federal government's aggressive target External link..
Hours worked in Canada fell 1.3% in February, marking the largest monthly decline since April 2022. This decrease affected all sectors, primarily due to a snowstorm that caused 429k employees to lose work hours, over four times the usual number for February in previous years. Regardless, our GDP growth estimate for the first quarter remains at 2.0% annualized, in line with the Bank of Canada’s January forecast.
Average wage growth edged up to 3.8% year-over-year in February, following a steady downward trend that brought year-over-year wage growth from 5.0% in October 2024 to 3.5% in January (graph 3). However, it’s still well-outpacing inflation, meaning Canadians benefitted from ongoing real wage gains through the second month of 2025.
A frozen labour market in February does not yet fully reflect the heightened downside risks posed by Trump's tariffs, potentially dampening growth in the coming quarters and leading to widespread job losses. (See our recent analysis External link. on the implications for Canada). Although monetary policy might not be the best tool to address the impacts of a trade war, it can help mitigate the negative effects on economic growth. Hence, with the unemployment rate still above its trend and wage growth consistently well below its peak, the Bank of Canada is likely to continue its easing next Wednesday and proceed in a measured manner due to concerns about stagflationary risks from the tariffs.
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NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively.
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