The Canadian economy shed 66,000 jobs in August and the unemployment rate jumped to 7.1 per cent, the latest signs that the labour market is reeling from prohibitive U.S. tariffs.
Outside of the pandemic, the unemployment rate now resides at the highest level since 2016, Statistics Canada said Friday in a report, rising from 6.9 per cent in July. The numbers show that the bulk of job losses in August were in part-time work.
U.S. tariffs on Canadian goods have been squeezing the economy for several months, with gross domestic product tumbling at a 1.6-per-cent annualized rate in the second quarter. Combined with Friday’s weak labour numbers, the Bank of Canada could be pushed to cut its benchmark interest rate – currently at 2.75 per cent – at its next meeting in under two weeks.
“The ugly employment numbers released today should be enough to push those who had been in the ‘no cut’ camp to reassess their outlooks,” said Royce Mendes, head of macro strategy at Desjardins Bank, in a Friday morning note. He predicted that the bank would cut interest rates by 25 basis points later this month, and ultimately reduce them to 2 per cent.
Doug Porter, Bank of Montreal’s chief economist, said the weak jobs report “reinforces any bias” for the central bank to ease rates. But he also cautioned that the next inflation report – released a day before the BoC’s decision on Sept. 17 – will be influential.
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Ontario led employment declines last month, with 26,000 jobs lost, followed by British Columbia with 16,000 fewer jobs.
Much like 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 January.
The data also suggested a more concerning trend: that employment decreases have spread beyond manufacturing and resources – directly hit by tariffs – to the broader service sector. In particular, the professional and scientific sectors saw 26,000 job losses, or a 1.3-per-cent decline in employment.
“Following mixed signals from labour data throughout 2025, 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. Mr. Bernard emphasized that only some job weakness represented the trade war’s impact on the economy, but there continues to be significant difficulty finding new work among those who are already unemployed, building off last year’s trend.
Returning students are facing the worst job market in 16 years (excluding the pandemic), according to youth unemployment data from Statscan. 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 drastically in August, with 43,000 job losses, a decline of 1.6 per cent. Self-employment has been sliding for months now, a sharp contrast to the job gains amongst self-employed individuals recorded in the second half of 2024.
Mr. Porter noted that the weakening job market was having an impact on wage growth. Average hourly wages grew by 3.2 per cent in August, a slight year-over-year decline.
The U.S. job market also continued its summer stall, adding just 22,000 jobs in August. The unemployment rate rose by 0.1 percentage points to 4.3 per cent last month, the highest it has been since November, 2021. Job losses were concentrated in goods-producing sectors, with the manufacturing industry losing roughly 12,000 jobs last month.
Mr. Mendes, of Desjardins, predicts that the U.S. Federal Reserve will cut interest rates three times in 2025.
