Canadian job losses mount, boosting odds of Bank of Canada rate cut

Canada’s labour market took another hit in August, intensifying calls for the Bank of Canada to consider further interest rate cuts as the trade war continued to take its toll on the economy. 

Statistics Canada said on Friday that the economy shed 66,000 jobs last month, compounding a 41,000 decline in July, in a new sign that the economy and jobs outlook are weakening.

The trade war’s impact on manufacturing and other exposed sectors has been pronounced, and the latest employment report “fully reinforces any bias for the BoC to ease somewhat further here,” said Doug Porter, chief economist and managing director at CFA. Still, a September cut isn't a certainty, he cautioned."Inflation hasn’t quite given them the all-clear.”

Unemployment at decade high

The national unemployment rate climbed to 7.1% in August, its highest level outside the pandemic in nearly a decade. Most of the job losses were part-time, but the brunt was felt in core-age employment, with a 93,000 decline among those aged 25 to 54.

Regionally, Ontario (-26,000 jobs), B.C. (-16,000), and Alberta (-14,000) saw the largest drops, while Quebec remained stable.

“Southern Ontario cities continue to shoulder the nation’s highest unemployment rates, with Windsor (11.1%), Oshawa (9.0%), and Toronto (8.9%) bearing the brunt of trade war impact,” said Claire Fan, a senior economist at the Royal Bank of Canada.

Trade war and inflation loom large

The trade war’s toll is evident, with manufacturing losing 58,100 jobs over seven months and professional, scientific, and technical services shedding 26,000 positions in August alone.

Porter said the upcoming Consumer Price Index (CPI) release on September 16—just before the next BoC meeting—remained a key variable as the central bank weighs up a possible reduction. “Another softer inflation print could raise odds for additional easing relative to our current base case that assumes the BoC has already reached the end of the cycle,” Fan said.

Economic resilience

Despite the negative headlines, some underlying fundamentals remain resilient. “We don’t expect that will spread and cause a sharp, broad-based contraction,” Fan noted, pointing to Canada’s relatively low average tariff rate under CUSMA and healthy domestic consumer spending.

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