Jobs shock strengthens case for Bank of Canada pause

Canada’s labour market hit a clear soft patch in February, deepening questions over how much longer the Bank of Canada could justify keeping rate‑hike options on the table.

The economy shed 84,000 jobs and the unemployment rate rose to 6.7%, Statistics Canada reported, with losses concentrated in full‑time and private‑sector positions and driven by youth and core‑age men.

The setback followed a 25,000 decline in January and effectively erased most of last fall’s gains.

Total employment was little changed from a year earlier, even as average hourly wages rose 3.9% year over year. Youth unemployment climbed to 14.1%, while Quebec and British Columbia led provincial losses.

Participation edged down to 64.9%, signalling a labour market that has cooled without yet tipping into outright collapse – a mix that typically made central banks more cautious about tightening.

Subtle shift in pressure on the Bank of Canada

Douglas Porter, chief economist at BMO Economics, called it “one of the worst (non‑pandemic) months ever for jobs,” adding that “the underlying story so far in 2026 is one of weakness.”

“If this employment report is at all indicative of underlying economic conditions, the last thing the Bank would be considering would be rate hikes,” he said.

RBC senior economist Claire Fan still expects “gradual improvements to drive the unemployment rate lower through the remainder of the year,” implying the Bank would have scope to stay on hold rather than move quickly.

TD and CIBC frame growing slack as a policy signal

TD Economics director and senior economist Andrew Hencic said “this was a decidedly weak report. Not only did employment decline, but the labour force contracted for a second consecutive month.”

Looking ahead, he said “we are expecting the labour market to tread water in 2026,” warning that “the wildcard to all of this is how big the inflation shock from the ongoing conflict in the Middle East will be.”

CIBC Capital Markets senior economist Katherine Judge drew a direct line to monetary policy, saying the labour market took a “worrisome turn” in February.

“This is clearly a very worrisome report for the [Bank of Canada] that shows that labour market slack has increased and activity is frozen amidst trade uncertainty,” she said.

Source CMP
By Liezel Once