People line up at a Service Canada office in Montreal. Data show that the bulk of job losses in August were in part-time work.Paul Chiasson/The Canadian Press
The Canadian and American job markets effectively stalled in late summer as employers struggled with the prohibitive costs of U.S. tariffs, contributing to a bout of weakness that will likely force both countries’ central banks to resume cutting interest rates in short order.
Canada shed 66,000 positions in August and the unemployment rate rose to 7.1 per cent – the highest level since 2016, apart from early pandemic years, Statistics Canada said Friday in a report. Meanwhile, the Bureau of Labor Statistics reported that the U.S. economy added 22,000 jobs last month, well below the 75,000 that economists expected to see.
The Canadian labour market has been soft for years; first because of rising interest rates that slowed the economy, and lately because U.S. President Donald Trump’s trade war has chilled hiring and investment plans.
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But in the U.S., the shift has been more abrupt.
Last year, the country added an average of 167,000 positions per month. That’s slowed to an average of 27,000 jobs over the last four months. On earnings calls and in surveys, American companies say they’re taking a big financial hit from the Trump administration’s onerous and erratic tariff policies.
As a result, economists and investors expect central banks to offer some imminent rate relief to prop up their economies.
“The ugly employment numbers released today should be enough to push those who had been in the ‘no cut’ camp to reassess their outlooks” for the Bank of Canada, said Royce Mendes, head of macro strategy at Desjardins Securities, in a client note.
Interest rate swaps, which capture market expectations of monetary policy, are pricing in a 90-per-cent chance that the central bank trims its benchmark rate by a quarter-percentage-point on Sept. 17, according to LSEG data. The bank has been on pause since March, leaving its overnight interest rate at 2.75 per cent.
The Federal Reserve is considered even more of a certainty to lower interest rates. Investors fully expect the Fed – which has been on pause since December, 2024, amid concerns about sticky inflation – to resume cutting rates on Sept. 17, based on market-implied odds.
With the U.S. labour market in distress, “this raises the risk of a harder landing for consumer spending and the economy in the months ahead,” said Scott Anderson, chief U.S. economist at Bank of Montreal, in a client note. But this also “provides all the necessary ingredients” for the Fed to resume cutting rates, he wrote.
The Statscan report showed that Ontario recorded the largest number of job losses, with 26,000 in August, followed by British Columbia, which lost 16,000.
Much like in previous months, the highest unemployment rates in Ontario were concentrated in manufacturing hubs. Windsor had an unemployment rate of 11.1 per cent in August, compared to 9.1 per cent in January, before the start of the trade war. Oshawa’s unemployment rate climbed to 9 per cent in August from 8.2 per cent in January. Toronto’s unemployment rate stood at 8.9 per cent, relatively unchanged since the beginning of the year.
The data also suggested a more concerning trend: that employment decreases have spread beyond industries directly hit by tariffs to the broader services sector. The professional and scientific industry saw employment drop by 26,000 jobs last month.
“The August numbers are the clearest signal that the job market has stalled,” wrote Brendon Bernard, senior economist at the job search company Indeed Canada, in a note on Friday.
Mr. Bernard said the trade war has delivered shocks to the Canadian labour market in certain industries and regions. He pointed out that it’s also meant people who were already unemployed are struggling to find work, given a lack of job vacancies to fill.
Students returning to full-time studies this fall are facing the worst job market in 16 years, data show.Cole Burston/The Canadian Press
Students aged 15 to 24 who are returning to full-time studies this fall are facing the worst job market in 16 years (excluding the beginning of the pandemic), according to Statscan figures. Between May and August this year, the unemployment rate for that demographic stood at 17.9 per cent. It was 18 per cent in the summer of 2009.
The number of self-employed workers also fell by 43,000 in August, a decline of 1.6 per cent.
In the U.S., manufacturing employment fell by 12,000 in August and by 78,000 when compared to last year. The unemployment rate rose one notch to 4.3 per cent, the highest level since 2021.
Trade wars are a challenging scenario for central banks to assess because tariffs constrain economic growth but also raise costs. Thus far, central bankers in Canada and the U.S. have opted to stand pat to see how tariffs would filter through the economy.
Lately, however, it appears that concerns are tilted toward growth. The Canadian economy contracted at a 1.6-per-cent annualized rate in the second quarter, owing to a massive hit to exports. Inflation, meanwhile, remains close to the BoC’s 2-per-cent target.
Andrew Grantham, senior economist at CIBC Capital Markets, expects the central bank to cut rates in September and again in the fourth quarter.
“The weakening of the Canadian labour market in recent months hasn’t solely been driven by sectors most sensitive to U.S. tariffs, suggesting that the Bank of Canada needs to recommence interest rate cuts to stimulate demand and hiring within the economy more broadly,” Mr. Grantham wrote in a client note.