RBC Says December Jobs Data a "Key Input" for Bank of Canada January decision

01:23 PM EST, 01/02/2026 (MT Newswires) -- Labour market data will be back in focus next week with the release of Canadian and U.S. December employment reports on Friday, the first major Canadian data release of 2026 and an important input ahead of the Bank of Canada's January policy decision, RBC Economics said in its latest 'Forward Guidance' note of this Friday.

After a series of firmer-than-expected labour market prints through the fall, RBC expects Canada's December data to show a pullback after a surprisingly large drop in November unemployment, but still consistent with early signs of broader stabilization in Canadian labour markets into the end of the year.

While noting changes in the monthly employment count are "notoriously volatile", RBC is looking for employment to decline by 35,000 in December, reversing more than half of November's large gain. "We expect the unemployment rate to rise to 6.8% to reverse most of (but not all) of the unusually large 0.4 percentage point drop to 6.5% in November."

Although November's sharp decline in the unemployment rate appears difficult to sustain, the expected December increase should be viewed as a partial reversal of that move rather than a signal of renewed labour market deterioration, RBC said.

November's employment gains were concentrated in part-time positions and among younger workers, while labour force participation declined. But the more stable core-age unemployment rate also fell and wage growth accelerated, RBC pointed out.

Furthermore, while heavily trade-exposed sectors continue to underperform broader employment trends, there is little evidence that weakness has spread more broadly across the economy. And broader labour market conditions have shown further signs of stabilization, the bank noted.

RBC said job postings data also suggest hiring demand has stopped weakening and may even be recovering modestly. Growth in the available labour force will continue to slow as federal government caps on temporary residence visas reduce population growth, it added. "The population aged 15+ already posted its smallest increase since May 2021 in November and highly likely slowed further in December given a reported pullback in total population in Q3."

From a policy perspective, December's labour market report is unlikely to materially alter the Bank of Canada's near-term outlook, RBC said, adding it continues to expect the next change in interest rates from the BoC will be a hike, but not (as a base-case) until 2027.

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