Canada's Labour Market: A Tepid Performance in March

Canada's labour market exhibited a lukewarm performance in March, continuing the volatile trends observed in recent months. Statistics Canada's latest labour force survey revealed a modest addition of 14,000 jobs across the Canadian economy, largely aligning with economists' expectations. The national unemployment rate remained unchanged at 6.7 percent, reflecting a period of relative stability despite prior fluctuations.

This data paints a picture of an economy grappling with various headwinds, including lingering trade disputes, sectoral shifts, and global economic uncertainties. Andrew Grantham, a senior economist at CIBC, had anticipated a stronger rebound in March, especially after cumulative job losses exceeding 100,000 in January and February. He highlighted the underlying weakness characterized by limited job creation and modest labour force growth, contributing to the elevated but stable unemployment rate.

Sectoral Shifts and Regional Impacts

Job growth in March was primarily driven by the 'other services' sector, which includes repair and maintenance activities. Positive contributions also came from professional, scientific, and technical services, natural resources, and manufacturing. However, the manufacturing sector has experienced significant job losses year-over-year, shedding 44,000 positions since March 2025, coinciding with the imposition of tariffs by the United States on Canadian goods.

This suggests that tariff-affected sectors have stabilized at lower employment levels, while other parts of the economy are not seeing substantial job gains. Conversely, the finance, insurance, real estate, leasing, and food and accommodation industries registered losses in March. Marc Desormeaux, vice-president of policy and economist at the Business Council of Canada, noted that recent labour force data indicates the impact of tariff-related weakness is now spilling over into the service sector.

Regionally, British Columbia experienced a loss of 19,000 jobs in March, following a similar decline in February. This pushed the province's unemployment rate to 6.7 percent, marking its highest level in approximately a decade, excluding the period during the COVID-19 pandemic.

Wage Growth Accelerates, but Sustainability Questioned

Across Canada, average hourly wages saw a year-over-year increase of 4.7 percent in March. This represents a significant jump from the 3.9 percent recorded in February and marks the fastest pace of wage growth since October 2024. Statistics Canada attributed some of this acceleration to the 'composition of employment,' where fewer lower-paying jobs are being added or sustained in the economy.

When accounting for these compositional factors, the average annual wage growth for March is approximately 3.6 percent, consistent with figures from January and February. Grantham cautioned against expecting sustained wage growth given the overall sluggishness of the economy, suggesting that the acceleration observed in the latest figures might not be sustainable due to other indicators of labour market softness.

Bank of Canada's Stance Ahead of Rate Decision

The release of this data provided the final assessment of the labour market for the Bank of Canada before its upcoming interest rate decision on April 29. The central bank maintained its benchmark interest rate at 2.25 percent in March. While the jobs report prompted some speculation in financial markets regarding a potential rate cut in April, the probability remained overwhelmingly in favour of the Bank of Canada holding the rate steady.

Andrew Hencic, a senior economist at TD Bank, suggested that the economic outlook remains fraught with challenges, including the energy shock resulting from the Iran war and ongoing uncertainty. He noted that weak demand in the sluggish economy could offset some inflationary pressures stemming from the war, allowing the Bank of Canada to maintain its current stance. Hencic forecasts subdued job growth and a stable unemployment rate due to prevailing economic uncertainties.

Grantham concurred, indicating that the Bank of Canada will adopt a 'wait-and-see' approach following the jobs report. He suggested that, absent the Iran war-induced oil shock, the central bank might have considered interest rate cuts to support economic recovery. However, policymakers now need to be prepared to counter the possibility of spreading inflation pressures. The soft labour market, he noted, helps to protect the economy against broad inflation, making it likely the Bank of Canada will maintain its current position throughout the year, contingent on future developments.