Low hire, low fire: TD Economics unpacks puzzling labour market
Canada’s labour market appears to be roaring back with nearly 200,000 jobs added since the fall, but a new report from TD Economics warns that a slate of other indicators is flashing a more cautious signal.
Over the final four months of 2025, the economy pumped out almost 200,000 net new jobs based on figures from the Labour Force Survey (LFS).
“This turn-out has not only blown expectations out of the water but is well above estimates consistent with a stable unemployment rate,” says the report by Paul Kim, economic analyst, and Derek Burleton, deputy chief economist.
However, the extent of this strength has been met with skepticism by many analysts, and “justifiably so,” say the authors, because LFS data “tends to be noisy at the best of times, but even more so during periods of rapid demographic shifts.”
Very different signals have emerged from the other key Canadian job market report – the Survey of Employment, Payrolls and Hours (SEPH), according to the TD Economics report, and that “reveals a far softer picture for employment growth.”
On the other hand, the Bank of Canada leverages a wide range of other indicators in driving its assessment of labour market conditions, say Kim and Burleton, with a dashboard that contains eight key metrics that “tend to be more stable indicators of job market performance than absolute hiring changes.”
Jobs-to-people ratio lags
After rising to 7.1 per cent in early autumn, the unemployment rate dropped to 6.8% as of December 2025 on the back of both stronger hiring and “a significant moderation in labour force growth (as tighter immigration policies have started to bite),” according to the report.
TD says the jobless rate has managed to slip within the Bank of Canada’s estimate of a “normal” range, but only narrowly, say the report’s authors, contrasting that with a longer-term ‘point’ estimate of the jobless rate (consistent with full employment) at six per cent.
The participation rate is telling “a similar story,” says the report, with the share of people working or looking for work “oscillating more or less in a sideways trend over the past year” and now at the low end of what the Bank of Canada deems as healthy (65.4%-66.0%).
“A slow improvement in in prime-age participation rate (88.8% in December) has offset declines in youth participation (63.2%),” say Kim and Burleton.
They flag the employment rate – the share of the working-age population actually in jobs – as “one of the broadest gauges of job market utilization” and say it has improved from September, “but perhaps less than one would have expected given the recent strength of job creation” because the surveyed population has continued to expand at a “relatively sturdy clip.”
The “modest uptick” still leaves the employment rate “well below the normal band” and is “one check mark under the column of ‘significant slack’,” according to the report.
Vacancies, shortages and churn
On the demand side, the economists point to the ratio of vacancies to unemployed workers as “another cautionary flag on degree of slack,” saying it peaked at 0.96 in summer 2022 at a time of unusually tight job markets and soaring labour demand.
It has since been on “a one-way ticket down to levels of around 0.3, overshooting the range in what the BoC would dub ideal,” says the report. For comparison, the 2015-19 average was closer to 0.40, they say, adding that the metric “has stabilized over the past few months, as both numerator and denominator have hit firmer ground.”
The job vacancy rate has continued to deteriorate since last summer, though moderately, and at 2.6% to 2.7%, stands about one percentage point below the historical average of 3.5%. That’s after having reached its historical record of 5.7% in 2022, a level the report says is “unlikely to be tested anytime soon.”
Survey evidence from employers also points to easing pressure. In the Bank of Canada’s Business Outlook Survey, only 22% of businesses report labour shortage as of the last survey in January, “highlighting the seismic shift in worker demand stemming from a persistent output gap and the economic uncertainty weighing on business decisions,” TD Economics says.
That compares with a share that “soared as high as 46%, far above the pre-pandemic average of 32%,” during the tight 2022 labour market, say the authors.
On labour market “churn,” the authors say the job-finding rate has improved to 19.6% in November (modestly above last year’s 18.6%), which is still far outside of its normal range and at the low end of historical rates.
They estimate the current separation rate to be around 1.0, close to its historically tight levels: “This divergence is consistent with a ‘low hire, low fire’ backdrop.”
Job growth to 'slow sharply'
Overall, the results “depict a slightly improving backdrop,” says the report, in which more than half of the indicators have seen marginal improvements over the past 3 months, while few others have slightly retreated.
“The good news/bad news storyline around the job market is yet another reason to expect the BoC to stand pat on monetary policy in coming rate decisions.”
Looking ahead, the authors say they don’t anticipate large changes in the overall job market assessment and that job growth is likely to “slow sharply” in 2026 and 2027 – from last year’s 300,000 annual average clip to 75,000 to 100,000. They expect “a further loosening in labour market conditions” to be “contained by a parallel softening in labour supply measures” and project the unemployment rate will still hover at close to current levels before easing to 6.2% by the end of 2027.
In its bottom line, TD says that “an examination of 8 key job metrics on the BoC’s dashboard points to a market that has remained broadly stable, with some indicators suggesting easing labour market slack heading into 2026,” and concludes that this “complements our view that the central bank will remain on hold for the foreseeable future.”
