Rosenberg Research Says Bank of Canada Business, Consumer Surveys Reveal Soft Labor Market Underbelly

10:30 AM EST, 01/20/2026 (MT Newswires) -- The Bank of Canada's Q4 Business Outlook Survey revealed on Monday a lingering soft underbelly to the local economy, said Rosenberg Research.

The headline diffusion index may have been "less negative," at -1.78 in Q4 from -2.27 in Q3, but it has consistently been in contraction territory since Q1 2023, noted Rosenberg Research.

While the measure of capital spending rose to +14% from +7% in each of the prior two quarters, that came at the expense of a turndown in labor market requirements to +16% from +25% in Q3 -- the lowest level since the tail end of 2015 when the implosion in the oil patch very nearly took the Canadian economy into recession and forced the BoC into radical rate cuts.

Indeed, there is nothing at all inflationary about a shift higher in the capital-to-labor ratio, pointed out Rosenberg.

As a consequence, only a net 27% share stated that they had "some difficulty" in meeting demand, down from 31% in Q3, and this is the lowest reading since Q2 2020. The net opinion on labor shortages also remains firmly in disinflation terrain, at -15%, and only 25% of firms say that their pricing power is eroding. A mere 16% share sees inflation settling in above 3.0% while more than three-quarters are in the 1%-3% camp. Interestingly, the share of companies lamenting that credit standards have tightened almost doubled in Q4 to 18% from 10%.

Separately on Monday, the BoC's Q4 Survey of Consumer Expectations (CSCE) also remained in negative territory as it has for the better part of the past four years. The sore spot remains the labor market, which has shown net contraction in each of the past four quarters and is at its worst level since Q1 2021, added Rosenberg.

A near-record of one-in-five Canadians now fear a job loss in the next 12 months, more than double the pre-COVID norm. As such, wage perceptions remained tame, at 2.44%, and inflation views stabilized at around 4.0%.

As a consequence, it's no surprise that interest rate expectations for the next one-to-two years were trimmed by around -30 basis points, according to Rosenberg.

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