Canada's labor market dips sharply in February, unemployment rate up

By Promit Mukherjee

OTTAWA, March 13 (Reuters) - Canada's economy unexpectedly lost a net 83,900 jobs in February, while the unemployment rate rose to 6.7% as job losses occurred in both services and goods, Statistics Canada data showed on Friday, as U.S. tariffs weighed on the economy.

A drop in the number of jobs this steep was last observed almost 17 years ago if the months of lockdown during the pandemic are excluded, StatsCan said.

The result missed analysts' expectations of a job gain of 10,000 and an unemployment rate of 6.6%. In the previous month, the economy lost 24,800 jobs and the jobless rate was at a 16-month low of 6.5%.

"No sense sugar-coating this one — this is simply a brutal result," Doug Porter, chief economist with BMO Capital Markets wrote in a note. "The underlying story so far in 2026 is one of weakness.... And now the economy has to contend with higher energy costs flowing from the Iran conflict."

Canada's labor market has failed to add any substantial jobs in the last few months as economic growth sputtered owing to a range of tariffs from U.S. President Donald Trump across critical sectors such as steel, autos, lumber and copper.

While the knock-on effects from these sectors have largely been contained, the Bank of Canada and economists have warned of more job losses as companies hold back investments and announce layoffs.

With the job losses of January and February, the economy has shed a total of 109,000 jobs, coming close to offsetting the massive gains of 189,000 jobs seen between September and December.

Unemployment among youth, which is usually higher than among the core-aged people between 25 and 54 years, rose to 14.1% in February, StatsCan said.

February's overall drop was led by 108,400 jobs lost among full-time workers in February and 72,600 jobs lost in the private sector. Government jobs also declined by 17,100 last month.

When asked about the labor market data during a press conference in Bardufoss, Norway, Prime Minister Mark Carney called it an impact of the U.S. tariffs, although he said the labor market was much better than that of the U.S.

"There's no question, though ... that, given the scale of the trade actions, the uncertainty that is associated with the trade actions by the United States, that is causing big adjustments in the Canadian economy," he said.

Canada and the United States are engaged in bilateral talks to reduce the impact of tariffs and for the review of a three-nation free trade pact also involving Mexico before July 1.

The BoC has warned if the trade pact is not extended, it could trigger a recession in Canada.

In a blow to the BoC's efforts to keep inflation low, the average hourly wages of permanent employees - a gauge closely tracked by Canada to determine inflationary trends - rose 4.2% in their sharpest increase since October 2024, after a 3.3% rise in January.

The goods-producing sector, which comprises some of the top sub-sectors highly exposed to the U.S. tariffs, lost 27,900 jobs, while the usually resilient services sector posted a bigger decline of 56,200 jobs, StatsCan said.

The Canadian dollar CAD= weakened 0.4% to C$1.3693 against the U.S. dollar, or 73.03 U.S. cents. Yields on the two-year government bonds CA2YT=RR were down 4.7 basis points to 2.621%.