A weak Canadian jobs report this morning has money markets raising their bets that the Bank of Canada will cut its key interest rate next week - although it’s still not seen as a slam dunk given continued uncertainly swirling over tariffs and trade. Economists are largely in agreement that the bank should lower rates.
Canada’s unemployment in February was unchanged from the prior month and new job additions was only marginally up, Statistics Canada said Friday, showing early signs of an impact of uncertainty around U.S. tariffs on hiring decisions of companies.
The unemployment rate for February was at 6.6% and the economy added a net of 1,100 jobs, Statistics Canada said.
This is in sharp contrast to job additions of 76,000 seen last month and a cumulative jobs addition of 211,000 people seen in the last three month, Statscan said. Analysts polled by Reuters had estimated the unemployment rate at 6.7% and net additions of 20,000 jobs in February.
This was the last major data to be released before the Bank of Canada’s monetary policy decision on March 12. The Canadian dollar and bond yields moved lower after the data.
Money markets are now pricing in about 76% odds that the bank will cut interest rates the seventh time in a row to 2.75% on March 12. That’s up from 69% odds prior to the data.
Here’s how implied probabilities of future interest rate moves stood in swaps markets moments after the jobs report, according to LSEG data. The overnight rate now resides at 3 per cent. While the bank moves in quarter-point increments, credit market implied rates fluctuate more fluidly and are constantly changing. Columns to the right are percentage probabilities of future rate moves.
And here’s what they looked like just prior to the 830 am ET data:
Here’s what economists are saying in written commentaries in reaction to the Canadian jobs data:
Andrew Grantham, senior economist, CIBC
Hiring stalled during February, in what could be the first sign that tariff uncertainty is impacting the Canadian economy. ... The sector breakdown showed a strong gain in wholesale & retail employment, offset by declines in other areas including some most exposed to tariff uncertainty such as manufacturing and transportation & wholesaling. Hours worked fell 1.3% on the month, although that reflected large winter storms that hit central and eastern Canada during the reference period. Hourly earnings for permanent employees accelerated to 4.0%, from 3.7%, but the decline in hours worked due to winter storms could have caused some volatility here. Given the stall in hiring during February, and ongoing uncertainty regarding tariffs that is likely to have larger negative impacts ahead, we continue to expect a 25bp cut from the Bank of Canada next week. .... While the Bank of Canada can’t solve the tariff issue with lower interest rates, it can help the economy transition towards other growth drivers.
James Orlando, director and senior economist, TD Economics
The job market couldn’t keep up its feverish pace over the last few months. Winter storms were likely the culprit, but deteriorating hiring sentiment given heighten policy/trade uncertainty may have also started to bleed into the data. One month doesn’t make a trend, but Canadians should be closely watching the labour market for signs of weakness in the months ahead. Luckily, the Canadian labour market came into the current tariff crisis on solid footing, which is important given the significant headwinds the economy is facing.
The Bank of Canada is set to meet next week, and markets are solidifying around a 25 bp cut. We have been arguing that it is prudent for the central bank to keep cutting as insurance against the downside risks brought on by tariffs. Our scenario analysis embeds significant risk of recession should President Trump keep holding tariffs over our heads. And even if delays keep happening, the uncertainty will weigh on business and consumer confidence, diminishing our previously rosy outlook for the economy.
Taylor Schleich and Ethan Currie, economists with National Bank Financial
When it comes to Bank of Canada policy, it’s not clear this release would carry the weight it traditionally does whichever way the data came out. With tariff uncertainty (and now the tariffs themselves) weighing on the economy, the Bank will want to be a source of stability. To us, that involves delivering a 25 basis point rate cut next week. Looking beyond the March 12th decision, there’s a case to be made that further cuts are warranted on the basis of uncertainty alone. It’s a compelling argument and one we generally support but as the policy rate moves into the lower half of the estimated neutral range (2.25% to 3.25%), decisions will have to become more finely balanced even if tariffs remain in effect. If incoming labour market data remain firm, strengthening broadens to other surveys and inflation pressures resurface, there may not be much further room for rates to fall. But if the Canada-US trade war negatively impacts a broader suite of economic data (which we see as more likely), a steady dose of rate cuts are likely in store.
Derek Holt, vice-president, Scotiabank Economics
In short, weather combined with what I think are probably unreliable seasonal adjustment factors are two very good reasons to toss this report in the round file. Added to this the fact that employment lags developments, and so there should be much more focus upon forward-looking debates like whether US trade policy will come to its senses and how that may affect trend job growth going forward. ...
Overall, I don’t think that the Bank of Canada will be fussed by these numbers, or at least there is a very strong case for how it should not be. They are likely to cut next week to land on neutral and given uncertainty’s damaging effects. [Bank of Canada Governor Tiff] Macklem is likely to sound very guarded on the bias.
Charles St-Arnaud, chief economist, Alberta Central
Overall, the weakness in February seems to be a return to normal. It will be interesting to see in next month’s report what impact the extreme uncertainty caused by the US tariffs will have on the labour market. With that, it is important to note that the amount of slack remains substantial, with the unemployment rate close to 7% and the participation rate and employment rate close to their lowest level since the late 1990s.
Today’s release solidifies our view that the Bank of Canada will cut at next week’s meeting. Even with delayed tariffs, the extreme uncertainty seen in recent months is having a negative impact on the economy. As a result, we think a 25bp cut would be appropriate on Wednesday and that more rate cuts should be expected this year.
Robert Embree, senior economist, Rosenberg Research
This confirms the weak labor market picture (lowest job creation number since July 2024) and reinforces the BoC’s easing bias — supporting a rate cut next week and beyond. ... Indeed, without wholesale trade hiring effects ahead of possible tariffs, the report would have shown an outright decline [in jobs]. This reverses the fairly strong employment picture we saw in Q4 and is consistent with tariff uncertainty tipping Canada’s growth downward.
Tu Nguyen, economist at RSM Canada
February’s job report stands in sharp contrast to the previous three months and highlights the toll tariff threats are taking on Canada’s economy. The Bank of Canada is expected to drop its interest rate by 25 basis points at the announcement next week. Already, over 60 per cent of Canadian exports to the U.S. are subject to 25 per cent tariffs as they currently are not covered under CUSMA. Demand for these goods will decrease, making it necessary for the central bank to cut rates to soften the blow.
Bryan Yu, chief economist, Central 1 credit union
Broadly this was a tame labour market report and businesses hit by weather impacts while businesses sat on their hands awaiting trade policy outcomes. If anything, given these factors, performance was on the rosy side. While the waffling of the U.S. on tariffs points again to some short- term relief, uncertainty will continue, and investment will remain sluggish. Growth in the economy will slow, with tariff outcomes driving the magnitude. On the monetary policy front, expectations are fluid, a nudging up of wage growth, and flat unemployment alongside recent data pointing to a solid economic start to 2025 could keep the Bank of Canada on the sidelines on March 12, we expect cuts to continue thereafter towards 2 per cent.
Douglas Porter, chief economist, Bank of Montreal
One mild surprise was that average hourly wages ticked back up to a 3.8% y/y pace (from 3.5%), although that’s still well down from the 5% trend of a year ago. ... For a change, there’s little drama in today’s Canadian jobs data, and the markets will now quickly turn back to the original trade war programming. Overall, the figures are a bit weaker than expected—perhaps weather affected—but it’s notable that the jobless rate still held steady (after hitting 6.9% in November) and wages nudged up. Looking through the monthly wobbles, it’s reasonably clear that the job market had been turning the corner in recent months...until the trade war erupted.
Stephen Brown, deputy chief North America economist, Capital Economics
The essentially unchanged level of employment in February was probably mostly due to the unseasonably severe winter weather during the survey reference week rather than the threat of US tariffs. Nonetheless, the imposition of tariffs this week – even if there are exemptions – represents a downside risk to the labour market over the rest of the year. ...
Professional services employment fell the most, by 33,000, while transportation & warehousing shed 23,000 positions and utilities, construction and manufacturing employment all fell by 5,000. Most of the offset came from a 50,000 surge in retail & wholesale trade employment. It seems unlikely that the fall in professional services employment had much to do with the weather, but Stats Can noted that the heavy snowstorms across the country contributed to a steep 1.3% m/m decline in hours worked, which suggests that weather effects weighed on hiring to some extent too. While that leaves scope for hiring to strengthen in some sectors in March, the 4,800 decline in manufacturing employment could be a sign of what is to come for that sector amid the imposition of US tariffs.
The snowstorms also weighed on participation, with the labour force falling by 17,000 despite a 47,000 rise in the population, which kept the unemployment rate unchanged at 6.6%. That increase in the population was the smallest monthly change in almost three years and is also a sign of things to come, as recent policy changes continue to weigh on immigration. We previously expected much slower immigration and labour force growth to contribute to a decline in the unemployment rate this year but, with hiring now likely to be weaker than we previously assumed, our new forecast is that the unemployment rate will average between 6.6% and 6.8% throughout 2025.
Nathan Janzen, assistant chief economist, Royal Bank of Canada
The February labour market data was broadly in line with expectations - there are early signs that the intensification of uncertainty from U.S. tariff threats, and pull back in measures of business confidence, had an impact on hiring on the more trade-sensitive goods producing side of the economy, with offsetting growth in more domestically focused services jobs.On its own, the improvement in Canadian economic data (upside surprise in Q4 GDP growth, unemployment rate still below its peak late last year, and upside inflation surprises in recent months) would probably be enough to warrant a pause in the BoC’s rate cutting cycle next week. But those positive developments are being overshadowed by escalating U.S. trade threats. The reported one-month reprieve from tariffs for USMCA compliant trade will help, but more trade uncertainty is in the pipeline including steel and aluminum tariffs set to kick in next week and ‘reciprocal’ tariff announcements to follow in April. We expect next week’s interest rate decision could still be impacted by news flow into early next week and will be a close call.
With files from Reuters