Statistics Canada said a surge in workers rejoining the labour force pushed the unemployment rate higher to end the year.
The unemployment rate rose to 6.8 per cent in December, StatCan said, up from 6.5 per cent in November.
The agency said the economy added a modest 8,200 jobs last month, topping economists’ expectations for a decline of 5,000 positions.
December's job growth was largely in full-time work with gains from the healthcare sector, while the professional, scientific and technical services side of the economy lost roles.
The data showed job gains in Ontario and Quebec last month did not keep pace with labour force growth in both provinces, driving the jobless rate higher. StatCan's definition of unemployment captures anyone who's not working but can work and is looking for a job.
RBC assistant chief economist Nathan Janzen said more people entering the labour force is an "encouraging development."
While more job seekers can push up the unemployment rate, the increase suggests that Canadians who were on the sidelines of the labour market now feel more optimistic about their ability to find work.
Janzen said what would be more worrying is "if there were a lot of, say, discouraged workers that were giving up their job search."
Economists polled by Reuters had expected the economy would shed 5,000 positions in December, giving back some of the 181,000 jobs added in the previous three months.
Statistics Canada said the labour market faced headwinds from U.S. tariffs through much of 2025 but conditions improved for job seekers toward the end of the year.
Janzen said that while trade-sensitive industries are still coping with tariffs, there are signs of stabilization in those sectors.
"The labour market ended the year better than was feared earlier in the year when U.S. tariff threats and actual tariffs got implemented," he said.
Kaylie Tiessen is the chief economist at the Canadian SHIELD Institute, a think tank focused on Canada's economic sovereignty amid the trade war with the United States.
She argued that while the headline numbers might speak to broad resilience in the labour market in 2025, the story was different across industries, provinces and demographics.
"The average doesn't tell the story of Canada's labour market," Tiessen said.
"Having one overarching story makes everyone feel alienated from that story and then they're not recognizing their own experience in what is getting reported."
Alberta was a winner for employment gains last year, Tiessen noted, as was the healthcare sector, while other provinces and industries reported middling growth or contractions.
Young workers aged 15 to 24 accounted for 27,000 job losses in December, and StatCan noted that youth in particular faced a tough job prospects this past year.
Coming off a year when employers had low hiring appetites, Tiessen said it remains to be seen whether workers re-entering the labour force will have job opportunities waiting for them in 2026.
"Hopefully, they don't get discouraged again," she said.
Friday’s jobs report marks the Bank of Canada's last look at the state of the labour market before its first interest rate decision of the year at the end of this month.
BMO chief economist Doug Porter said in a note to clients that December's job figures likely reflect the labour market's reality better than the previous months of outsized job gains that caught most economists off guard.
He said last month's "moderation" likely won't move the Bank of Canada from the sidelines and supports BMO's view that the central bank will keep its benchmark interest rate on hold through 2026.
The Bank of Canada held its policy rate steady at 2.25 per cent in its final decision of the year last month. Governor Tiff Macklem said at the time that monetary policymakers see the rate as at "about the right level" to keep inflation under control while giving a bit of support to the economy.
Financial markets placed the odds of a quarter-point cut at the Bank of Canada's upcoming decision on Jan. 29 at nearly 12 per cent as of Friday afternoon, according to LSEG Data & Analytics.
TD Bank senior economist Andrew Hencic also said in a note that Friday's report is "unlikely to move the needle for the Bank of Canada." Uncertainty in the economy and lingering inflation risks should keep the central bank from lowering its rate any further, he argued.
Janzen said previous rate cuts from last year are still feeding through the economy, and planned increases in spending from the federal government in particular should give a lift to the labour market in 2026.
"We still expect the Bank of Canada to remain humble the rest of this year and to defer on adding further stimulus," he said.
Picture Courtesy: THE CANADIAN PRESS/Christopher Katsarov
