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Labour Market Losses Deepen as U.S.–Canada Trade Uncertainty Continues

Canadian Economics

By: Loubna Zebiri

    

  • Employment fell by a net 66,000 (-0.3 per cent) in August. The labour force participation rate edged down slightly to 65.1 per cent, while the unemployment rate increased to 7.1 per cent, the highest since May 2016 (outside of the Covid-19 period March 2020 to September 2021).
  • On a year-over-year basis, average hourly wages rose by 3.2 per cent.
  • Employment in goods-producing industries increased by a modest 1,700, with the gains concentrated in construction (17,100), agriculture (4,800) and utilities (4,700).
  • Manufacturing employment, the sector most directly exposed to trade-related pressures, posted the largest decline this month, falling by 19,200. This sharp drop offset all the employment gains recorded for this sector in the past two months.
  • The services sector saw a significant net employment loss of 67,200, with declines observed in 7 of 11 sub-sectors. Notably, employment fell sharply in professional, scientific, and technical services (-26,100), transportation and warehousing (-22,700), and educational services (-18,400).
  • Provincially, employment gains were limited to Quebec (+7,100) and Prince Edward Island (+1,100). In contrast, Ontario recorded the largest decline (-26,000), followed by British Columbia (-15,700) and Alberta (-14,200).

Key insights

The downturn in the Canadian labour market continued in August amid sustained economic headwinds. Lower employment alongside a rising unemployment rate and a slight decrease in labour force participation, collectively signal a moderation in labour demand. These trends align with the broader economic slowdown, where ongoing trade tensions continue to undermine business confidence and dampen hiring intentions. Despite the challenges wage growth has remained steady so far.

Employment declines were widespread across several sectors, with trade-exposed industries notably impacted. Manufacturing jobs fell by approximately 19,000, reaching their lowest level in two years, while transportation and warehousing saw a drop of around 23,000 positions, effectively reversing the unexpected gains from the prior month. Beyond these trade-sensitive sectors, significant job losses also occurred in business and technical services, as well as educational services.

Canada’s new immigration caps through 2027 mark a structural tightening of the country’s labour supply. Immigrants have been a key source of workforce growth, especially in sectors like healthcare, construction, and agriculture. Cutting both permanent and temporary admissions is likely to reduce labour availability now and in the medium term, raise job vacancy rates in critical areas, and put upward pressure on wages, all while demographic aging continues to erode participation.

To learn more about Canada’s economic outlooks for the next five year’s, please consult our Canadian Outlook.

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