Canada's job market loses steam as employment drops by over 41,000

Canada's economy lost 41,700 jobs in August, data showed on Friday, slowing sharply from unusually strong summer hiring, while the unemployment rate held steady at 6.4%. The August report provides one ‌of the last relatively clean readings of Canada's labor market before the effects of U.S. President Donald Trump's new 50% tariffs begin to filter through the economy.

The duties cover a relatively small share of Canada's exports but are concentrated in vulnerable industries including wood products, raising the risk that the recent momentum in the labor market ‌could grind to a crawl. Analysts polled by Reuters had forecast job gains of around 15,000, as against a huge 75,100 job additions in ‌July. The forecast for the unemployment rate was the same as reported.

The Canadian dollar was trading down 0.51% at C$1.3860 to the U.S. dollar, or 72.15 U.S. cents. Yields on the 2-year government bonds firmed after the labor data, trading 1.3 basis points up to 2.469%. Most of the job losses were observed in full-time employment where positions shrank by 35,900, while part-time employment also saw ⁠reductions of ​5,800 jobs, Statistics Canada said.

Recent hiring ⁠figures have been flattered by temporary factors such as census-related employment and jobs associated with the soccer World Cup, which resulted in additions of a massive 181,000 jobs between April and July. The ⁠gains of the past few months have also come as the broader economy has proved more resilient than expected through more than 18 months of U.S. trade restrictions, with ​widespread layoffs so far failing to materialize.

However, a new set of U.S. tariffs and Canada's retaliation coming into effect from early next week are ⁠expected to deflate some of the momentum. The service-producing industries, such as healthcare, education, transportation, and financing, employ four out of every five people in the labor force and bore the brunt of employment decline ⁠in ​August.

The industry lost 51,500 jobs in August led by business, building and support services and wholesale and retail trade, StatsCan said. The unemployment rate continued to be at a two-year low even though the economy has faced a barrage of Trump's tariffs.

A sluggish growth in the labor force due to ⁠tighter immigration rules and an ageing workforce has also helped in improving the unemployment level in the last few months. The labor force, which stood at 22,632 ⁠million, shrank for the first time since ⁠February.

The unemployment among the youth edged up 0.3 percentage points to 12.9% in August, reversing a declining trend from April to July. The average hourly wage of permanent employees, a gauge of inflation, dropped to 2% in August from 3% ‌last month, its lowest level ‌in more than seven years outside of the pandemic.