Canada’s labor participation rate edged up to 65.20% in October 2025, matching market expectations and reversing a slight decline from 65.10% in September. The Sigmanomics database shows this figure remains below the 12-month average of 65.30%, reflecting a labor market that is stable but not accelerating. This rate is still below the peak of 65.50% recorded in February 2025, indicating some lingering slack.

Drivers this month

• Modest gains in youth and prime-age groups contributed 0.10 pp.
• Participation among older workers remained flat, limiting upside.
• Regional disparities: stronger engagement in Western provinces offset by softness in Quebec.

Policy pulse

The current participation rate aligns with the Bank of Canada’s cautious stance on inflation targeting. With inflation hovering near 3%, the central bank’s recent rate hikes aim to temper wage pressures without triggering sharp labor market contractions. The steady participation rate suggests labor supply is holding firm despite tighter financial conditions.

Market lens

Immediate reaction: The Canadian dollar (CAD) appreciated 0.15% post-release, while 2-year government bond yields rose 5 basis points, reflecting confidence in labor market resilience. Breakeven inflation rates remained stable, signaling balanced inflation expectations.

The participation rate is a core macroeconomic indicator reflecting labor market health and economic potential. At 65.20%, Canada’s rate remains above the pre-pandemic average of 64.80% (2019) but below the recent peak in early 2025. Employment growth has slowed, with the unemployment rate steady at 5.10%, indicating a tight but not overheated market.

Monetary Policy & Financial Conditions

Bank of Canada’s policy rate stands at 4.75%, up from 4.25% six months ago. Higher borrowing costs have dampened business investment and hiring intentions. However, wage growth remains moderate at 3.20% YoY, supporting stable participation. Financial conditions have tightened, but credit remains accessible for prime borrowers.

Fiscal Policy & Government Budget

Federal fiscal policy remains moderately expansionary, with targeted spending on infrastructure and skills training. The 2025 budget projects a deficit of 1.80% of GDP, down from 2.30% last year, signaling gradual fiscal consolidation. These measures support labor market participation by enhancing workforce skills and mobility.

External Shocks & Geopolitical Risks

Global supply chain disruptions have eased but geopolitical tensions, especially in Eastern Europe and Asia-Pacific, pose risks to trade and commodity prices. Energy sector volatility impacts regional labor markets, particularly in Alberta and Saskatchewan. These external factors could influence participation through economic uncertainty.

Drivers this month

• Youth participation rose by 0.20 pp, driven by increased school-to-work transitions.
• Prime-age workers’ participation was stable at 82.50%, near historical highs.
• Older workers (55+) participation remained unchanged at 40.10%, reflecting demographic trends.

Policy pulse

The participation rate remains consistent with the Bank of Canada’s inflation target zone. The central bank’s forward guidance indicates a pause in rate hikes, contingent on labor market data like this. Stable participation supports a balanced approach to monetary policy.

Market lens

Immediate reaction: The CAD strengthened modestly, while short-term yields rose, reflecting market confidence in labor market stability. Equity markets showed limited movement, indicating cautious optimism.

Looking ahead, Canada’s participation rate faces several influences. The labor market is expected to remain stable but sensitive to economic shocks. Three scenarios outline possible paths:

Bullish scenario (30% probability)

• Strong economic growth above 2.50% GDP.
• Participation rises to 65.50% by year-end due to robust hiring and immigration.
• Wage growth accelerates moderately, supporting consumer spending.

Base scenario (50% probability)

• GDP growth around 1.80% with steady inflation near 2.50%.
• Participation holds near 65.20%, reflecting balanced labor supply and demand.
• Monetary policy remains on hold, supporting stable financial conditions.

Bearish scenario (20% probability)

• Global recession or sharp commodity price shocks reduce labor demand.
• Participation falls below 65%, driven by discouraged workers and lower immigration.
• Monetary tightening resumes, increasing borrowing costs and slowing hiring.

Risks include geopolitical tensions, fiscal tightening, and demographic shifts. Upside potential hinges on immigration policy and technological adoption boosting labor force engagement.

Canada’s October 2025 participation rate signals a labor market in cautious equilibrium. The steady 65.20% figure reflects resilience amid monetary tightening and external uncertainties. Structural trends such as aging demographics and evolving workforce participation patterns will shape future dynamics. Policymakers must balance inflation control with labor market support to sustain growth.

Financial markets responded with measured optimism, as reflected in CAD strength and bond yield movements. The Sigmanomics database provides a reliable, timely lens on these trends, enabling informed policy and investment decisions.

Overall, Canada’s labor market participation is poised to maintain its current level barring major shocks, with moderate upside potential if economic conditions improve.

Since 2020, Canada’s participation rate and the CADUSD exchange rate have shown a positive correlation. Periods of rising participation, such as post-pandemic recovery phases, coincide with CAD appreciation against the USD. This relationship underscores the currency’s sensitivity to labor market fundamentals and economic growth prospects.

Year	Participation Rate (%)	CADUSD Avg. Rate
2020	64.50	0.75
2021	64.90	0.79
2022	65.10	0.80
2023	65.30	0.82
2024	65.40	0.83
2025 (YTD)	65.20	0.84

Takeaway: Canada’s participation rate remains steady, signaling a resilient labor market that supports balanced monetary policy and cautious economic optimism.