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Labour Market Momentum Fades as U.S.–Canada Trade Conflict Persists

Canadian Economics

By: Maxime Arseneau

    

  • Employment in July fell by 41,000 (0.2 per cent). The labour force participation rate edged down to 65.2 per cent, while the unemployment rate held steady at 6.9 per cent. On a year-over-year basis, average hourly wages rose by 3.3 per cent.
  • Employment in goods-producing industries declined by 29,000, with the losses concentrated in construction (-21,600) and agriculture (-10,800).
  • Manufacturing employment, facing the most direct risk from trade, however, increased for the second consecutive month (+5,300).
  • The services sector also posted a net loss (-10,900), driven by sharp declines in information, culture and recreation (-29,200), business services (-19,200), and healthcare (-16,500).
  • Provincially, employment grew in the Atlantic provinces as well as in Manitoba and Saskatchewan. Ontario posted a small decline (-2,800), while Alberta (-16,300), British Columbia (-16,800), and Quebec (-15,000) accounted for most of the national job losses.

Key Insights

Canada’s labour market remained subdued as the country entered its seventh month of trade conflict with the United States. Since January, employment has grown by only 0.1 per cent, while the unemployment rate has risen from 6.6 per cent to 6.9 per cent. While the loss of momentum in the labour market is concerning, our initial estimates of the impact of the trade conflict had much more severe impacts to workers, and so the overall labour market performance this year continues to show that Canada’s economy is weathering the storm with some success.

By industry, the steepest losses in since January have been in business services, construction, and manufacturing. All Canadian goods that fail to meet Canada–U.S.–Mexico Agreement (CUSMA) rules of origin face U.S. duties, with aluminum, steel, and automotive products bearing the heaviest burden from targeted tariffs. While employment in manufacturing increased over the two last months, it still remains below January level. With trade disruptions expected to persist, these industries are likely to remain under pressure, and overall employment growth will probably stay weak through year-end.

Beyond trade headwinds, labour markets are also being shaped by slower population growth. Between January and July 2025, Canada’s working-age population expanded by just 0.8 per cent, compared with 1.9 per cent over the same period in 2024. This slowdown follows the federal government’s decision last autumn to sharply reduce both permanent and temporary immigration after two years of record population gains. The policy change is expected to eventually exacerbate labour shortages in certain industries, as employers compete for a smaller pool of job seekers.

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

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