Fewer people looking for work pushed Canada’s unemployment rate to 6.5 per cent in January even as the economy shed 25,000 jobs,

Statistics Canada said Friday. Canada’s employment rate fell 0.1 percentage points to 60.8, the first decline since last August.

Meanwhile, the country’s participation rate — the proportion of the population aged 15 and up who were employed or looking for work — decreased 0.4 percentage points to 65 per cent. The number of people who were not participating in the labour force hit 12.4 million in January, up 2.7 per cent from a year earlier.

“This is a trend to keep an eye on,” Andrew Hencic, senior economist at TD Economics, said in a note. “Canada’s population is expected to shrink in 2026, meaning a smaller pool of available workers. Under these conditions the unemployment rate can continue to fall even if Canada is losing jobs.”

Part-time jobs decreased by 70,000 and was partly offset by a rise in full-time work, which increased by 45,000. Due to gains in full-time work, overall employment is up by 134,000, or 0.6 per cent, compared to 12 months ago.

Manufacturing led job declines as the number of people working in the sector fell by 28,000. Compared to a year ago, overall employment in manufacturing is down by 51,000 or 2.7 per cent. Educational services and public administration also suffered losses, but employment in both industries was little changed year-over-year.

Hiring, however, was up in information, culture and recreation, business, building and other support services, agriculture and utilities.

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CIBC Capital Markets economist Andrew Grantham called the latest labour numbers a “mixed bag” with job losses, on one hand, suggesting weak hiring while the drop in the unemployment rate suggests a decline in labour market slack.

“As a result, we doubt this will have much impact at the Bank of Canada , and it doesn’t change our view that interest rates will be on hold for the remainder of this year,” he said.