RBC says weak jobs report puts pressure on Bank of Canada to lower rates

Canada shed 66,000 jobs in August, marking a second straight monthly contraction and pushing the unemployment rate up to 7.1%, its highest level in nearly a decade outside of the pandemic, Clare Fan, senior economist at Royal Bank of Canada, said in a report.

The decline followed a 41,000 job loss in July and underscores the toll that escalating trade tensions are taking on the labour market.

“The worsening trend in the summer also mirrors conditions south of the border – job growth in the U.S. has largely ground to a halt since May and the unemployment rate has also edged higher,” Fan said.

Employment losses were concentrated in trade-exposed sectors. Manufacturing, transport and warehousing together shed 42,000 positions in August. Ontario (-26,000), British Columbia (-16,000) and Alberta (-14,000) saw the steepest provincial declines, while Quebec held steady. Southern Ontario cities remain hardest hit, with unemployment rates of 11.1% in Windsor, 9% in Oshawa and 8.9% in Toronto.

Most of the losses were part-time, though hours worked ticked up 0.1%. Core-age employment (25 to 54) fell by 93,000, driving that group’s jobless rate to 6.1%, up from 5.6% in January before the latest escalation in trade disputes. Professional, scientific and technical services also saw a notable 26,000 decline, while education services lost 18,000, largely reversing a July gain.

Wage growth cooled to 3.2% in August from 3.8% in July, in line with easing hiring demand. The labour force participation rate slipped again, to 65.1%.

Fan said the weak report raises the likelihood the Bank of Canada will consider further easing at its Sept. 17 policy meeting, particularly if the next consumer price index report the day before comes in soft.

“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,” she said.

Still, she added that Canada’s downturn is not yet broad-based. The relatively low tariff rate under CUSMA exemptions and “healthy domestic consumer spending trends” should help “keep a floor under broader economic conditions.”

RBC continues to expect marginal but positive economic growth averaging 0.6% (quarter-over-quarter annualized) in the second half of 2025.

-30-