Canadian labor market loses momentum as economy sheds more than 41,000 jobs

The Canadian economy lost 41,700 jobs in August, data released on Friday showed, marking a sharp slowdown from an unusually strong summer hiring spree, while the unemployment rate held steady at 6.4%.

The August report provides one of the last readings to largely reflect the underlying state of Canada’s labor market before the impact of US President Donald Trump’s new 50% tariffs begins to filter through the economy.

The tariffs cover a relatively small share of Canadian exports but are concentrated in vulnerable industries, including lumber products, raising the risk that the labor market’s recent momentum could fade and slow sharply.

Analysts polled by Reuters had expected the economy to add around 15,000 jobs, compared with a hefty increase of 75,100 in July. Their unemployment-rate forecast matched the actual reading.

Statistics Canada said most of the job losses were concentrated in full-time employment, which fell by 35,900 positions, while part-time employment also declined by 5,800.

Recent employment figures have benefited from temporary factors, including census-related jobs and employment linked to the FIFA World Cup, which helped generate a substantial 181,000 jobs between April and July.

The gains over the past few months also came as the broader economy proved more resilient than expected despite more than 18 months of US trade restrictions, with no widespread wave of layoffs emerging so far.

However, a new round of US tariffs, along with retaliatory measures from Canada that are due to take effect at the start of next week, is expected to erode some of that momentum.

Service sector bears the brunt of job losses

Four out of every five people in Canada’s workforce are employed in service-producing industries such as healthcare, education, transportation and finance, and those sectors accounted for the bulk of August’s employment decline.

Statistics Canada said the sector lost 51,500 jobs in August, led by business, building and other support services, as well as wholesale and retail trade.

The unemployment rate remained at its lowest level in two years despite the economy facing a wave of tariffs imposed by Trump.

Slower labor-force growth, driven by tighter immigration rules and an aging workforce, has also helped improve the unemployment rate over the past few months.

The labor force, which stood at 22.632 million people, contracted for the first time since February.

The youth unemployment rate rose by 0.3 percentage points to 12.9% in August, reversing the downward trend seen from April through July.

Average hourly wages for permanent employees, one measure of inflationary pressures, slowed to 2% in August from 3% the previous month, reaching their lowest level in more than seven years excluding the COVID-19 pandemic period.