Canada’s unemployment rate fell to 6.5 per cent in January, but the economy shed positions, leaving the Bank of Canada to sift through a “bizarre” and “mixed bag” picture, say economists.

Economists had called for the unemployment rate to hold at 6.8 per cent and for the economy to add 5,000 positions. Instead, the

jobless rate fell to its lowest level in 18 months and the economy lost 25,000 jobs , Statistics Canada said in its Labour Force Survey on Friday.

‘Bizarre’: Rosenberg Research

Here’s what economists say about the job numbers and what they mean for the Bank of Canada. “If there was ever a completely bizarre piece of data released, it was the January employment data that just came out,” David Rosenberg, president of

Rosenberg Research Associates Inc. , said in a note, adding that “the report was littered with internal contradictions.”

First, the good news: the net drop in jobs could be due to a 69,700 plunge in part-time positions as full-time roles jumped by 44,900 after gaining about 50,000 in December.

On the downside, the business sector posted its largest decline in jobs in four years, with sectors that are most tied to the economic cycle — manufacturing, retail/wholesale, construction, recreation, transportation services, finance/real estate, and food services and accommodation — falling as a group for the past three consecutive months and in six of the past seven.

“Not at all a good look,” Rosenberg said. He estimates the unemployment rate would have risen to seven per cent had the number of people looking for work not fallen.

The most important metric in the report for him was wage growth, which slowed to 3.3 per cent year over year in January from 3.7 per cent in December.

Rosenberg said that proves there is slack in the labour market, which “is among the most important components of this report as far as the Bank of Canada is concerned.”

‘Modest layoffs’: Oxford Economics

“More job losses are likely in the cards for (the first half of) 2026” along with “modest layoffs,” Tony Stillo, director of Canada economics at

Oxford Economics Ltd. , said in a note. Canada’s labour supply in January shrank by 120,000 month over month, the largest monthly drop since January 2021, when pandemic lockdowns once again hit the labour force.

Slower population growth and a drop in the number of people looking for work caused the drop, he said, adding that “modest layoffs” were also recorded in January.

“We’ve long highlighted that a shrinking labour supply would put downward pressure on the unemployment rate, and that trend will likely persist as the population shrinks in the months ahead,” he said.

Stillo said more job losses are expected as U.S. tariffs continue to buffet targeted sectors and as domestic demand weakens.

“Like the Bank of Canada, we also think there’s still slack in the labour market, and today’s soft employment report helps solidify that view,” he said.

Oxford expects the Bank of Canada to hold rates through 2026 before hiking to 2.75 per cent by mid-2027. The Bank of Canada’s benchmark lending rate currently stands at 2.25 per cent.

‘Not normal’: BMO

“It’s not normal to see unemployment pull back aggressively even as job growth goes into reverse,” Douglas Porter, chief economist at

Bank of Montreal , said in a note. But he said there is an explanation since there was a drop of 119,000 people in the participation rate due to a falling population and fewer people looking for work.

The unemployment rate is lower than it was at the start of the trade war in early 2025, when it stood at 6.7 per cent.

The report was a “mixed bag” of softness and some strength, he said. For example, full-time positions rose, as did total hours worked. But the drop in manufacturing positions was “heavy” and sending them 2.7 per cent lower than a year ago.

He said the losses “slammed Ontario,” where factories lost 29,300 jobs, leaving the province’s unemployment rate at 7.3 per cent. But every other province gained jobs.

“Essentially, this report is consistent with an economy that is adjusting rapidly to three structural changes at once,” Porter said, with those being U.S. tariffs, a drop-off in population growth and an aging population.

Normally, the Bank of Canada would respond to a cooling jobs picture with interest rate cuts, he said.

“However, it’s also clear that it will take a lot to shift the Bank of Canada off the sidelines, and this mixed report will not qualify,” he said.

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