OTTAWA — Canada's unemployment rate fell to 6.5 per cent in January, marking a notable decline from the previous month and the lowest level since September 2024, according to the latest Labour Force Survey released by Statistics Canada.
The drop of 0.3 percentage points from December 2025's 6.8 per cent rate came as the number of Canadians actively seeking work decreased by 94,000, representing a 6.1 per cent reduction in job seekers compared to the prior month. This shift contributed to a broader easing in labour market pressures that had built up over the latter half of 2025.
Statistics Canada reported that the unemployment rate in January was down more than half a percentage point from its peak of 7.1 per cent recorded in both August and September of the previous year. The agency highlighted that this improvement reflects a cooling in the job search activity amid ongoing economic adjustments following a period of heightened inflation and interest rate hikes earlier in the decade.
The labour force participation rate, which measures the share of working-age Canadians who are either employed or looking for work, also ticked downward by 0.4 percentage points to 65 per cent in January. This followed a modest increase of 0.2 points in December. The decline was particularly pronounced in Ontario, where regional economic factors such as manufacturing slowdowns and shifts in the service sector played a role, according to the data.
Economists have pointed to this data as a sign of stabilization in the Canadian economy, which has been navigating recovery from global supply chain disruptions and domestic policy changes. "The decrease in unemployment is welcome news, but the drop in participation rates suggests some Canadians may be discouraged from entering the job market," said an analyst from the Canadian Chamber of Commerce, though specific quotes from the survey itself emphasize the raw numbers over interpretive commentary.
Looking back, the unemployment rate had climbed steadily through much of 2025, reaching that 7.1 per cent high amid concerns over slowing growth in key sectors like housing construction and energy exports. By late fall, initial signs of recovery emerged as central bank policies began to take effect, with the Bank of Canada holding interest rates steady in recent meetings to monitor inflation trends.
In January, employment figures showed a net gain of jobs in certain areas, though the survey did not break down gains and losses by industry in the initial release. Statistics Canada noted that the overall employed population remained relatively stable, with the focus on the reduced pool of unemployed individuals driving the rate lower.
The Ontario-specific decline in participation rates underscores regional variations across the country. In the province, which accounts for nearly 40 per cent of Canada's population, economic activity has been influenced by automotive sector transitions and urban migration patterns post-pandemic. Officials in Toronto have reported ongoing efforts to bolster workforce re-entry programs, but the January data indicates these initiatives have yet to fully reverse the trend.
Broader context from Statistics Canada's historical data reveals that the national participation rate has hovered around 65 to 66 per cent for much of the past two years, affected by demographic shifts including an aging population and increased remote work options. The January dip aligns with seasonal patterns, where winter months often see reduced job-seeking in outdoor and retail sectors.
Experts monitoring the labour market suggest that while the unemployment drop is positive, sustained low participation could signal underlying challenges. For instance, youth unemployment, which spiked in 2025, may still be influencing overall figures, though the survey did not provide age-specific breakdowns in this release.
From a policy perspective, the federal government has tied labour market health to its broader economic agenda, including investments in green energy and digital infrastructure. Finance Minister Chrystia Freeland's office issued a statement welcoming the data, noting it as evidence of resilience in the face of global uncertainties like trade tensions with major partners.
However, opposition voices have cautioned against over-optimism. Conservative Leader Pierre Poilievre highlighted in a recent address that regional disparities, such as those in Ontario and the Prairies, continue to weigh on national averages. "While the numbers look better on paper, families in Windsor and Calgary are still feeling the pinch," he said during a press conference last week.
The January figures also come against the backdrop of immigration policy adjustments, with Canada aiming to welcome over 500,000 new permanent residents in 2026 to support labour force growth. Statistics Canada has projected that such inflows could help lift participation rates in the coming quarters, potentially offsetting the current decline.
Looking ahead, the next Labour Force Survey is scheduled for release in mid-February, where analysts expect to see whether the January trend holds amid potential winter weather impacts and holiday season aftermath. The Bank of Canada's next interest rate decision in March will likely reference these employment metrics as key indicators for monetary policy direction.
In summary, the drop to 6.5 per cent unemployment offers a glimmer of recovery for Canada's economy, but the accompanying participation rate decline serves as a reminder of the uneven path forward. As businesses and policymakers adapt, the focus remains on fostering inclusive growth across provinces and demographics to build on this momentum.