Canada's Labour Market Still Gradually Softening Ahead of Looming Tariff Threat – Action Forex
Canada’s labour market likely continued to underperform in January as it has consistently shown a more pronounced deterioration than the U.S. job market.
We expect Canada added 15K jobs in January, but with a larger increase in the labour force nudging the unemployment rate higher. We expect it will rise to 6.8%, partially retracing a pullback to 6.7% in November from 6.9% in October but still up more than a percentage point from a year ago. Canadian household spending has shown signs of life, but sentiment among businesses remains lethargic as firms continue to face challenges with spare capacity after a prolonged string of slow demand growth. Companies reported limited hiring intentions for the year ahead in the Q4 Bank of Canada Business Outlook Survey.
Hiring demand has fallen sharply – job openings were still running 23% below year-ago levels in November. Wage growth has shown signs of slowing and smaller increases in wages in job postings argue for further slowing ahead. The rise in the unemployment rate to-date has been driven more than usual by students and new job seekers, but layoffs have still accounted for almost 40% of the increase in the unemployment rate over the last two and a half years.
Over the past year, job gains have been largely concentrated in the services sector – almost half from public sector education and healthcare jobs. We expect this will continue as the manufacturing sector faces weaker demand and threats of disruption from tariffs. With weaker population growth expected from reduced immigration targets, the pace of job creation is expected to continue to slow throughout 2025.
U.S. labour markets, however, continue to look solid by comparison. We expect January payroll numbers to show the U.S. added 190K jobs on Friday, and for the unemployment rate to tick down to 4.0%. We continue to expect resilience in the U.S. jobs market through 2025 but hiring rates continue to fall, indicating tight conditions have eased. The pace of job creation will be challenged over the medium term by an ageing population and slower population growth (made worse if mass deportations of migrants materializes).
Week ahead data watch
We expect the U.S. trade deficits to widen to $97.4B in December. According to the advance economic indicator report, the goods deficit widened by $18.6B from last month, mainly driven by higher imports and weaker exports.
We expect Canadian exports expanded by 1.9% in December, in line with stronger rail carloading data. We expect imports to dip slightly given motor vehicle shipments weakened.
