Canada's Labor Market Sending Mixed Signals, While Real GDP Growth Will Slow To About 1% This Year, TD says

09:47 AM EST, 02/09/2026 (MT Newswires) -- Canadian government bond yields ended last week mostly unchanged, TD Economics has noted in a review of last week.

Meanwhile, it also noted, while the US dollar (USD) continued to strengthen, causing the Canadian dollar (CAD or loonie) to fall to 73 cents/USD, the depreciation was limited as Bank of Canada Governor Tiff Macklem dismissed the possibility of further rate cuts in his first public speech of 2026.

In terms of data, the first Labour Force Survey (LFS) for 2026 was the main economic event last week, and January's jobs numbers were full of surprises, TD said. The bank noted the unemployment rate dropped three ticks to 6.5%, reversing December's increase. It noted this occurred despite the economy losing 25,000 jobs in January, but also as the labor force contracted by 120,000 people. Large swings in the month to month labor force survey numbers are common, but January was the biggest drop in the labor force since early 2021, TD added.

With Canada's population projected to contract this year, the unemployment rate can continue to fall even if Canada is losing jobs, TD said.

TD noted the LFS has notably outperformed its companion payrolls survey, which has given much weaker signals about the health of Canada's job market. An objective evaluation of both readings likely puts the actual health of the labor market somewhere in the middle, the bank said. It noted the labor market entered this year on a soft note, but added the gradual decline in the unemployment rate suggests that the situation is improving.

Beyond last week's LFS, the bank said it has limited data available to it to gauge Canada's early year economic performance. It noted preliminary housing figures for January showed double digit home sales declines in Toronto and Greater Vancouver, with Calgary seeing a slight lift. A wave of new listings eased market conditions, while average prices fell 1% to 2% month over month, continuing recent softness.

Overall, TD said Canada's housing market is set for a subdued year, mirroring the bank's view for tepid overall growth in Canada in 2026. Consumer spending will likely cool and investment remain weak, though government expenditures and improved exports should help offset these trends, it added.

The bank forecasts real gross domestic product growth to slow to about 1.0% this year before "moderately" accelerating to trend-like growth by 2027.

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