The Canadian labour market began 2026 with a series of complex signals that challenge traditional interpretations of economic health. According to the latest Labour Force Survey released on February 6, 2026, the national unemployment rate fell to 6.5%, down from 6.8% in December. While a declining unemployment rate is typically a cause for celebration, the underlying data reveals a cooling economy characterized by job losses, a shrinking labour force, and significant sector-specific shifts.

A divergent landscape of jobs and participation

The headline reduction in the unemployment rate was not the result of a hiring surge but rather a substantial contraction in the number of people actively seeking work. In January, the economy shed approximately 25,000 positions, marking the first net loss of jobs since August 2025. This decline was mirrored by a massive drop in the labour force of roughly 119,000 people, the largest such decrease in five years. Consequently, the participation rate (the share of the population either working or looking for work) slipped to 65.0%.

Beneath the surface of these headline figures, the quality of employment showed some resilience. Part-time roles bore the brunt of the losses, decreasing by nearly 70,000. Conversely, full-time employment grew by 45,000 positions, suggesting that while the total volume of workers is shrinking, those remaining in the workforce are increasingly moving into stable, permanent roles.

Sectoral and regional shifts

The manufacturing sector continues to be the primary point of concern for the Canadian economy. In January alone, the sector lost 28,000 jobs, bringing the year-over-year decline to 51,000 positions. These losses were heavily concentrated in Ontario, Canada’s industrial heartland, which has faced significant headwinds due to ongoing trade uncertainties and U.S. tariffs. Other sectors seeing notable declines included educational services and public administration.

In contrast, the services side of the economy provided a necessary buffer. The information, culture, and recreation sector added 17,000 jobs, continuing a growth trend that began last autumn. Business and support services also saw a modest rebound of 14,000 positions, though the industry remains below its levels from a year ago. Geographically, while Ontario struggled, the Prairies and Atlantic Canada saw modest employment gains, with Alberta leading the way by adding 20,000 jobs.

Wage trends and economic outlook

Wage growth remains a critical factor for both the Bank of Canada and the average worker. Average hourly wages rose by 3.3% on a year-over-year basis in January, a slight deceleration from the 3.4% growth recorded in December. This cooling of wage pressure, combined with sluggish overall employment growth, suggests that the labour market is no longer as tight as it was during the post-pandemic recovery.

Governor Tiff Macklem of the Bank of Canada has indicated that the recovery throughout 2026 will likely be uneven. With population growth slowing (nudging up by only 5,200 in January), the expansion of the labour supply is expected to remain limited. This demographic shift may keep the unemployment rate from rising sharply, even if job creation remains soft, as the pool of available workers shrinks alongside the demand for them.

Strategic implications for staffing professionals

For staffing and recruitment professionals, the January survey signals a pursued move toward a "low hire-low fire" environment. The era of extreme labour scarcity is fading, but it is being replaced by a persistent and growing skills gap. Recruiters are finding that while more candidates may technically be available, finding those with the specific specialized skills required for modern technical and trade-reliant roles is becoming more difficult.

The increase in worker churn within export-dependent industries offers a unique opportunity for talent acquisition. Approximately 5.4% of permanent employees in these sectors are planning a career move this year, citing uncertainty over trade policy. Staffing firms can capitalize on this by positioning themselves as bridges for talent looking to transition into more stable service or tech-based sectors.

Moving forward, the focus for staffing professionals should shift from high-volume recruitment to strategic workforce design. With 50% of hiring managers planning to utilize contract or contingent talent to manage fluctuating workloads in 2026, there is a clear demand for flexible staffing solutions. Emphasizing internal upskilling and presenting "interim" experts for senior roles will be essential strategies as Canadian businesses navigate a year of modest growth and high economic sensitivity.

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