Canada lost 42,000 jobs in August, and bank economists say the unemployment trend is now at risk
Canada's August jobs report — a loss of 42,000 positions, well below the 15,000-job gain markets had forecast — drew a pointed warning from CIBC economist Andrew Grantham: the downward trend in unemployment that had held since April "is likely to stall or partially reverse" as new US tariffs bite into labour-intensive export sectors.
RBC Economics senior economist Claire Fan struck a similar note, urging brokers and market watchers not to read cyclical weakness into what she characterised as structural and demographic forces reshaping Canada's labour supply.
The unemployment rate held steady at 6.4% in August, per Statistics Canada, unchanged from July but more than half a percentage point below the 7.1% reading a year ago.
The decline was concentrated in full-time employment (-36,000) and driven entirely by services-producing sectors, which shed 52,000 positions.
Business, building and other support services recorded the steepest single-sector drop (-20,000), while manufacturing bucked the trend with a gain of 22,000 jobs.
Quebec absorbed the sharpest regional blow, shedding 19,000 jobs and remaining the only province to post a year-over-year employment decline (-54,000).
Ontario shed 18,000 positions, pushing its unemployment rate from 6.8% to 6.9%.
Structural shifts beneath the headline
TD Economics director and senior economist Andrew Hencic was measured in his assessment. "Although disappointing, given the noisy nature of the data a step backwards is not a major surprise after a string of hot reports," he wrote in his August employment commentary.
"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."
Fan echoed that framing, attributing what she described as "dismal job growth" to rising retirement rates and slowing immigration rather than cyclical deterioration.
Hours worked rose 0.6% in August, sustaining a Q3 annualised pace of 5%, though Grantham cautioned the gain may partly reflect manufacturers rushing shipments ahead of tariffs, a boost that could unwind in September.
Average hourly wages rose just 2.0% year over year, slowing from 2.8% in July and 3.3% in June. Excluding 2021, Hencic noted, it marked the slowest pace of wage growth since November 2017.
Bank of Canada stays on hold
Hencic was direct on the rate outlook. "The labour market has made material improvements over the past year," he wrote.
"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 labour market, and we continue to expect the Bank of Canada to remain on hold."
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