Canada's Unemployment Rate for December 2025 Rises to 6.80%, Exceeding Expectations
Canada’s unemployment rate for December 2025 climbed to 6.80%, above the 6.60% estimate and up from November’s 6.50%. This uptick signals emerging labor market softness amid tightening monetary policy and global uncertainties. The 12-month average remains elevated at 6.90%, underscoring persistent challenges. Key risks include inflation pressures, fiscal constraints, and geopolitical tensions, while potential easing in financial conditions could stabilize employment ahead.
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Canada’s unemployment rate for December 2025 was reported at 6.80%, rising from 6.50% in November 2025, according to the latest data from the Sigmanomics database. This figure also exceeds the consensus estimate of 6.60%. The increase marks a reversal from the downward trend observed in late 2025, when the rate had briefly dipped to 6.50% in December 2024 and early 2025 months.
Drivers this month
- Labor force participation remained steady, but job creation slowed in key sectors such as manufacturing and retail.
- Seasonal layoffs in construction and agriculture contributed to the rise.
- Wage growth pressures moderated, reducing incentives for new hires.
Policy pulse
The unemployment uptick comes amid ongoing Bank of Canada rate hikes aimed at curbing inflation, which has pressured businesses to slow hiring. The 6.80% rate sits above the Bank’s estimated natural rate of unemployment (~6.00%), suggesting some slack in the labor market.
Market lens
Financial markets reacted cautiously. The Canadian dollar (CAD) weakened slightly against the US dollar, while short-term bond yields edged lower, reflecting expectations of slower economic growth. Equity markets showed mixed responses, with sectors sensitive to consumer spending underperforming.
Examining core macroeconomic indicators alongside the unemployment data provides a fuller picture of Canada’s economic health. Inflation remains elevated at 3.40% year-over-year as of December 2025, down from a peak of 4.10% in mid-2025 but still above the Bank of Canada’s 2% target. GDP growth slowed to an annualized 1.20% in Q4 2025, reflecting weaker consumer spending and export headwinds.
Monetary Policy & Financial Conditions
The Bank of Canada’s policy rate currently stands at 4.75%, up from 3.75% six months ago. Tighter financial conditions have increased borrowing costs, dampening investment and hiring. Credit spreads widened modestly, signaling cautious lender sentiment.
Fiscal Policy & Government Budget
Federal fiscal policy remains moderately expansionary, with infrastructure spending supporting jobs, but rising debt levels constrain further stimulus. The 2026 budget projects a deficit of 2.50% of GDP, down from 3.10% in 2025, reflecting gradual fiscal consolidation.
External Shocks & Geopolitical Risks
Global supply chain disruptions and geopolitical tensions, particularly involving key trading partners, have weighed on export growth and manufacturing employment. Energy price volatility also adds uncertainty to Canada’s resource-dependent regions.
Drivers this month
- Seasonal layoffs in construction and agriculture sectors.
- Slower hiring in manufacturing and retail due to cost pressures.
- Moderation in wage growth reducing labor market tightness.
Policy pulse
The unemployment rate remains above the Bank of Canada’s estimated natural rate, suggesting persistent labor market slack. This supports the case for a cautious approach to further rate hikes, balancing inflation control with growth risks.
Market lens
Immediate reaction: The Canadian dollar (CAD/USD) slipped 0.30% in the hour following the release, while 2-year government bond yields fell by 5 basis points, indicating increased expectations of slower economic growth and potential policy easing.
This chart highlights a labor market trending toward increased slack after mid-2025’s peak unemployment. The recent rise in December suggests that monetary tightening and external headwinds are beginning to weigh on employment, signaling caution for policymakers and investors alike.
Looking ahead, the trajectory of Canada’s unemployment rate will hinge on several factors. We outline three scenarios:
Bullish Scenario (20% probability)
- Inflation moderates faster than expected, allowing the Bank of Canada to pause rate hikes.
- Fiscal stimulus and easing global tensions boost demand and hiring.
- Unemployment falls below 6.50% by mid-2026, supporting wage growth and consumer spending.
Base Scenario (55% probability)
- Monetary policy remains restrictive but steady, gradually cooling inflation.
- Labor market stabilizes near current levels (6.70%-6.90%) through mid-2026.
- Moderate GDP growth (~1.50%) supports steady but cautious hiring.
Bearish Scenario (25% probability)
- Global shocks intensify, disrupting trade and investment.
- Inflation proves sticky, forcing further rate hikes and deeper economic slowdown.
- Unemployment rises above 7.20%, pressuring wages and consumer confidence.
Risks and Opportunities
Upside risks include faster inflation decline and fiscal support, while downside risks stem from geopolitical tensions and financial market volatility. Monitoring wage trends, consumer sentiment, and external developments will be critical.
Canada’s December 2025 unemployment rate increase to 6.80% signals emerging labor market softness amid tightening monetary policy and external headwinds. While the rate remains near the 12-month average, the reversal from November’s low suggests caution. Policymakers face a delicate balance between containing inflation and supporting growth. Financial markets have priced in slower growth, with the Canadian dollar and bond yields reflecting increased uncertainty. Structural factors such as demographic shifts and technological change continue to reshape the labor market over the long run. Close monitoring of upcoming data releases will be essential to gauge the persistence of these trends and guide policy decisions.
Key Markets Likely to React to Unemployment Rate
The Canadian unemployment rate is a critical barometer for economic health and influences multiple markets. Equity indices sensitive to domestic consumption and interest rates often respond swiftly. Currency markets react to shifts in monetary policy expectations driven by labor market data. Fixed income markets adjust yields based on inflation and growth outlooks. Below are five tradable symbols with historical correlations to Canada’s unemployment trends:
- TSX – Canada’s main stock index, sensitive to economic growth and labor market conditions.
- CADUSD – The Canadian dollar vs. US dollar, reflecting monetary policy and economic outlook.
- USDCAD – Inverse of CADUSD, often moves inversely with Canadian labor market strength.
- BTCUSD – Bitcoin’s price can reflect risk sentiment shifts tied to economic uncertainty.
- SHOP – E-commerce giant with significant Canadian exposure, sensitive to consumer spending trends.
FAQs
- What does the December 2025 unemployment rate indicate about Canada’s economy?
- The 6.80% rate suggests a softening labor market amid tighter monetary policy and external headwinds, signaling cautious growth prospects.
- How does the unemployment rate affect monetary policy decisions?
- Higher unemployment may reduce inflation pressures, potentially prompting the Bank of Canada to pause or slow rate hikes to support growth.
- Why is the unemployment rate important for financial markets?
- It influences investor expectations on economic growth, inflation, and central bank actions, affecting currency, bond, and equity prices.
The December 2025 unemployment rate of 6.80% marks a 0.30 percentage point increase from November’s 6.50%, reversing a three-month downward trend. Compared to the 12-month average of 6.90%, the current rate remains slightly below the annual mean but signals a softening labor market after mid-2025’s peak of 7.10% in September and October.
Historical data from the Sigmanomics database shows a peak unemployment rate of 7.10% in both September and October 2025, followed by a decline to 6.50% in November before the recent uptick. This volatility reflects shifting economic conditions, including seasonal factors and policy impacts.