Labour Trends Signal Patience from Central Banks

This week’s data reinforced a theme we have been discussing with many of you: labour markets are cooling, but not cracking, and central banks are therefore in no rush to move.

In Canada, precious metals rebounded early in the week, providing a modest tailwind to the TSX. Broader equity performance has been more measured as investors weigh mixed economic signals and evolving policy guidance.

January’s labour report delivered a complicated message. Statistics Canada reported a loss of roughly 25,000 jobs, missing expectations for a gain. Yet the unemployment rate fell to 6.5% as labour force participation declined sharply. In short, both employment and unemployment fell in the same month, a dynamic largely explained by a shrinking labour pool. With population growth expected to slow this year, it is possible for the unemployment rate to drift lower even amid subdued hiring.

These conflicting signals are likely to keep the Bank of Canada in a holding pattern. Policymakers must weigh softer labour demand against reduced labour supply, and the balance argues for patience. At this stage, rates are likely to remain steady through much of this year as the economy adjusts.

In the United States, a brief government shutdown was quickly resolved, allowing focus to return to the data. The ISM manufacturing index posted a meaningful uptick in January. In a recent session, I noted that conditions were aligning for a rebound in this measure, and the latest reading confirms that inflection is now underway.

U.S. employers added 130,000 jobs, well above expectations, and unemployment edged down to 4.3%. While prior payroll gains were revised lower, the broader message is stabilization after last year’s hiring slowdown. For the Federal Reserve, that resilience supports a patient approach and tempers expectations for aggressive rate cuts.

Beneath the surface, market breadth continues to broaden. The rotation away from mega-cap names into value, cyclicals, and smaller capitalization stocks reflects diversification rather than deterioration, a healthy development following a narrow, tech-led advance we saw in previous years.

We remain encouraged by improving breadth and economic resilience, while continuing to watch labour trends and central bank rhetoric as key drivers of policy and portfolio positioning in the months ahead.

‍