Key Takeaways
- Canada’s job market lost 42,000 jobs in August, reversing the prior month’s gains.
- Analysts say ongoing trade uncertainty could weigh on hiring, keeping the Bank of Canada in a holding pattern through year-end.
- The unemployment rate was unchanged at 6.4%, its lowest level in two years.
Canada’s labor market lost 42,000 jobs in August, a sharp reversal from 75,000 gains in July, ending a strong run in recent months, according to the latest Statistics Canada report. Economists say the recent trade escalation could further weaken the job market, dousing the prospects of a Bank of Canada interest rate hike, after some saw a bias toward such a move at policymakers’ Wednesday meeting.
Declines were driven primarily by the loss of 20,000 jobs in the public sector. Losses of 20,000 were also reported in business, building, and other support services, along with a decline of 8,800 jobs in public administration and a 7,700-job drop in natural resources. Manufacturing was the only sector to record a significant increase in employment in August, adding 22,000 jobs.
Meanwhile, the unemployment rate held steady at 6.4%, its lowest level since 2024.
The Bank of Canada has held its policy rate at 2.25% since December, after delivering four quarter-point cuts in 2025. Policymakers are due to announce their next rate decision on Oct. 28.
The following are excerpts from economists’ commentaries on the August jobs data.
August Weakness Boosts the Case for a Continued Rate Hold
“After a run of surprisingly hearty job results, it seemed Canada was almost due for a reality check. So while this is no doubt a soft report, it’s far from a shock, and in part reflects the ongoing sag in the labor force population. Meantime, sturdy hours worked are a silver lining, and overall employment is still up 1.0% y/y.
“Still, the August cooldown in employment and average wages will reinforce the Bank of Canada’s holding pattern, and should calm some of the extreme rate-hike pricing in the market (though the big US payrolls number is acting as a heavy offset on that front).”
—Douglas Porter, chief economist at BMO Economics
Job Market Weakness Offsets Inflation Risk
“While new US tariffs only apply to a small subset of Canadian exports, they are hitting more labor-intensive sectors compared with tariffs that were already in place. Because of that, and because heightened uncertainty could also impact hiring decisions in other sectors, it is likely that the general downward trend in unemployment since April stalls or partially reverses in the months ahead. Continued slack in the labor market should continue to limit the pass-through from energy prices into other areas of inflation, enabling the Bank of Canada to remain on hold this year and into the start of 2027.”
—Andrew Grantham, senior economist at CIBC Economics
New US Tariffs Could Worsen the Labor Market Outlook
“Given the prior run of strong readings and the stable unemployment rate, the Bank of Canada won’t be too worried about this report. That said, the rise in trade tensions between Canada and the US has opened up the possibility of another wave of layoffs in trade-exposed sectors. While we don’t expect the breadth or intensity of any trade-induced economic slowdown to force central bankers into a more dovish stance, trade relations remain the key downside risk to our forecast. Yields are unchanged on the day, with markets remaining priced for almost 100 basis points of Bank of Canada rate hikes over the next year.”
—Royce Mendes, managing director and head of macro strategy at Desjardins Capital Markets
Jobs Data Makes the Bank’s Recent Hike Bias Look Premature
“The Labor Force Survey is often volatile, and after three consecutive relatively strong reports, a negative whipsaw was always a possibility. At its press conference this week, the Bank of Canada appeared to place greater emphasis on inflation risks amid what it perceives to be a stronger economic backdrop. Governor [Tiff] Macklem also stopped short of reiterating that the current level of interest rates remains appropriate. As a result, markets began pricing in more than a 40% probability of a rate hike at the Oct. 28 meeting.
“We have argued that this repricing was premature given (1) the uncertainty surrounding the strength and durability of the recovery, (2) the lingering negative impact of US tariffs, with additional measures expected to be announced over the weekend, and (3) the fact that Canadian inflation remains close to 2% and continues to show little evidence of spillover effects from the Iran conflict. Markets appear to have taken notice, with expectations for near-term Bank of Canada tightening moving lower following the release.”
—Dominique Lapointe, senior director, macro strategy at Manulife Investment Management.
Trade Uncertainty Could Add to Labor Market Weakness
“Jobs data is typically noisy, with wide fluctuations from month to month—which is precisely what has happened this year. Decreasing unemployment and moderate job gains were the trend over the past year, even though August’s figures represent an unexpected downturn. Nevertheless, the outlook is murky due to uncertainty caused by current trade tensions with the United States.
“The longer that Canada and the US go without returning to the negotiating table, particularly if they introduce further tariffs in the interim, the more hesitant businesses might be in hiring. September could see further job losses as the US tariff rate of 50% on select Canadian imports is unsustainable to maintain operations, especially for smaller businesses with less ability to pivot and diversify. We expect the Bank of Canada to continue holding its key interest rate through the end of the year due to ongoing trade uncertainty that will inevitably affect jobs.”
—Tu Nguyen, economist at RSM Canada
New Wave of Tariffs Brings Headwinds for Hiring
“Although disappointing, given the noisy nature of the data, a step backwards is not a major surprise after a string of hot reports. The important thing to take away here is that the unemployment rate remained unchanged on the month and is still 0.7 percentage points below last year’s print.
“The labor market has made material improvements over the past year. Unfortunately, trade uncertainty is the focus as new US tariffs took effect late last month and Canada’s counter-tariffs are set to go into effect next week. The prospect of further escalation is hard to dismiss and firmly represents downside risk to the outlook. For the time being, a 6.4% unemployment rate reflects excess supply in the labor market, and we continue to expect the Bank of Canada to remain on hold.”
—Andrew Hencic, director and senior economist at TD Economics
