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The uncertainty around tariffs and poor winter weather are to blame for Canada’s hiring slowdown in February, economists say, and that likely means more interest rate cuts by the Bank of Canada.
March 7, 2025 | by ltcinsuranceshopper
Tariff threats and bad weather bite into Canada’s job growth in February
The uncertainty around tariffs and poor winter weather are to blame for Canada’s hiring slowdown in February, economists say, and that likely means more interest rate cuts by the Bank of Canada.
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The unemployment rate held steady at 6.6 per cent in February, with the economy adding just 1,100 jobs during the month, according to Statistics Canada, which was lower than the 20,000 gain economists expected.
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Market odds of a interest rate cut next week rose to 85 per cent after the data came out, up from about 75 per cent.
Employment in the retail, wholesale trade, finance, real estate and insurance sectors rose, but declined in the scientific and technical services, transportation and warehousing sectors.
Here’s what economists had to say about the labour data and what it means for policymakers.
February’s slow month for hiring marks the “first sign that tariff uncertainty” has hit the Canadian economy, according to Andrew Grantham, a senior economist at CIBC Capital Markets.
He said the decline in hours worked was largely the result of winter storms, but there was also some weakness in sectors most at risk from tariffs, such as transportation and warehousing and manufacturing.
Grantham said the Bank of Canada can’t solve the tariff issue with lower interest rates, but he expects policymakers to cut rates in March since that could help the economy transition towards other growth drivers.
“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 25-(basis-point) cut from the Bank of Canada next week,” he said in a note.
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Both the weather and incoming tariffs are to blame for the lower-than-expected number of jobs created, according to James Orlando, director and senior economist at Toronto-Dominion Bank, and that likely means another rate cut from the Bank of Canada next week.
“One month doesn’t make a trend, but Canadians should be closely watching the labour market for signs of weakness in the months ahead,” he said in a note. “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.”
Orlando predicts a Canadian recession if tariffs persist, which would force the central bank to trim interest rates even further.
“Even if delays keep happening, the uncertainty will weigh on business and consumer confidence, diminishing our previously rosy outlook for the economy,” he said.
The slow job creation numbers show “little drama” and will have analysts quickly refocusing on the U.S. tariffs, Douglas Porter, chief economist at the Bank of Montreal, said.
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“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 per cent in November) and wages nudged up,” he said in a note.
“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 at Capital Economics Ltd., pointed to February’s “unseasonably severe weather” for the slowdown in hiring.
“It seems unlikely that the fall in professional services employment had much to do with the weather, but (Statistics Canada) noted that the heavy snowstorms across the country contributed to a steep 1.3 per cent (month-over-month) decline in hours worked, which suggests that weather effects weighed on hiring to some extent too,” he said in a note.
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Brown now expects the unemployment rate to finish the year between 6.6 per cent and 6.8 per cent as hiring is expected to weaken as tariffs take hold.
“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,” he said.
With files from Jordan Gowling
• Email: bcousins@postmedia.com
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