Canada’s unemployment rate dropped to 6.5 per cent in January as fewer people were looking for a job compared with the month before, according to Statistics Canada.
The January Labour Force Survey showed a 0.3-percentage-point drop in the unemployment rate compared with 6.8 per cent in December 2025 after the number of Canadians looking for work fell by 94,000, or 6.1 per cent.
January’s unemployment rate was the lowest since September 2024, and down more than half a point from a peak of 7.1 per cent in both August and September of last year, the agency says.
Some experts think the data shows an underlying trend for Canada’s job market.
“Unemployment is down, but only because people stopped looking for work. The labour force shrank by nearly 100,000 job seekers as Canadians gave up their employment search, driving the participation rate down,” said Shannon Terrell, a financial expert at NerdWallet Canada.
“Headline figures may look marginally better on paper, but the reality is that the country is facing a labour market that’s actively pushing people into the margins — this, as layoffs announcements continue across industries impacted by U.S. trade tensions and AI automation.”
Statistics Canada says the labour force participation rate, which is the proportion of working-aged Canadians who were either employed or looking for work, decreased 0.4 percentage points to 65 per cent in January after a slight uptick of 0.2 points in December.
The decline in the labour force participation rate was also concentrated in Ontario.
“While it is positive news that the unemployment rate has edged down from its peak in mid-2025 to 6.5 per cent in January 2026, the underlying drivers of this decline are less encouraging,” Anupriya Gangopadhyay, an economist at the Canadian Chamber of Commerce, said in a written statement.
“Moreover, even after nine months of U.S. tariffs, employment in the Canadian manufacturing sector continues to decline.”
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Job losses in manufacturing totalled 28,000, or a drop of 1.5 per cent in January, while educational services fell by 24,000, or a drop of 1.5 per cent.
U.S. tariffs imposed by President Donald Trump on Canada have impacted the economy, especially in resourcing and manufacturing products like aluminum and steel, lumbers, automobiles and auto parts.
At the end of last month, General Motors cut three shifts at an assembly plant in Ontario, which impacted 500 workers.
Ten thousand public administration jobs were lost in January, or close to one per cent, as Ottawa looks to cut program spending and administration costs by about $60 billion over the next five years. In Budget 2025, this was discussed as part of the government’s plans to balance its operating budget separate from capital spending on long-term economic projects.
Job gains were seen in information, culture and recreation, with 17,000 new jobs; 14,000 were added in business, building and other support services; agriculture saw 11,000 new jobs added and utilities saw just over 4,000 more jobs in January.
Most of the rising jobs numbers were concentrated in Alberta, Saskatchewan, and Newfoundland and Labrador, while other provinces and territories saw “little change,” the agency said.
About 45,000 jobs added were in full-time work, while part-time employment fell by 70,000 jobs.
The youth unemployment rate also fell 0.5 percentage points to 12.8 per cent in January, and down from a recent peak of 14.6 per cent in September 2025. Statistics Canada says the number of employed youth was little changed as fewer people searched for work.
Nathan Janzen, assistant chief economist at Royal Bank of Canada, believes that despite the unemployment rate falling last month, underlying weakness in the job market could reverse that soon.
“The details of the first Canadian employment report for 2026 were mixed, but broadly point to further signs of improvement in (per-worker) labour market conditions,” he said in a written statement.
“The Canadian labour market data is notoriously volatile and the large drop in the January labour force participation rate is unlikely to be sustained, raising the odds that the unemployment rate will reverse some of this improvement in coming months.”
Why fewer people are looking for work
In total, Statistics Canada says 12.4 million Canadians aged 15 or older were not participating in the workforce last month, which is up 2.7 per cent from a year prior.
There are a variety of reasons why someone may not be looking for work in Canada, which the agency describes, including an aging population and “other socio-economic changes.”
In the youth category, the report says 89 per cent of those aged 15 to 24 years old who were not working in January said they were attending school, which is up 2.2 per cent from 12 months earlier.
About 26 per cent of those aged 25-54 years who were not looking for work were caring for children and just over 23 per cent had an illness or disability, while 80 per cent of Canadians aged 55 and older said they were retired, according to the agency. It adds that these shares were little changed compared with January 2025.
Statistics Canada also said feeling discouraged about the job market may be a reason Canadians are not participating in the workforce “because they believe no work is available (in their area or suited to their skills) and as a result, they do not search for work.” The agency says about 34,000 Canadians cited these reasons for not participating in the workforce, which is up 0.1 per cent from a year earlier.
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