Canada's labour market experienced a setback in August, losing 42,000 jobs, which partially reversed earlier employment gains and resulted in only modest job growth for the year to date, according to Royal Bank of Canada (RBC) economist Claire Fan [1]. Fan attributes the weak job growth to structural factors such as an aging population leading to increased retirements and weaker immigration, which are seen as significant drags on employment [1]. Despite these challenges, the unemployment rate maintained improvements from previous months, and hours worked strengthened, suggesting some underlying resilience in the labour market [1]. Fan also notes that only 0.4% of Canadian jobs are directly affected by new U.S. Section 338 tariffs, and she expects solid domestic demand, as reflected in Q2 GDP data, to support further labour market improvement into 2027 [1].
TD Securities strategists highlight that the softer August labour report, which included weaker employment momentum and slower wage growth, is unlikely to materially alter the Bank of Canada's (BoC) assessment of the labour market [2]. The six-month employment trend rose to 23,000, up from 16,000 in July and above the 13,500 trend for labour supply, though three-month rates of employment and labour supply edged lower from July [2]. The deceleration in wage growth is seen as potentially easing some of the BoC's concerns about inflation risks [2]. However, the combination of a downside surprise in Canadian jobs and a stronger-than-expected U.S. payrolls report has weighed on the Canadian Dollar (CAD), with TD Securities expecting USD/CAD to remain anchored around 1.39 in the near term and forecasting CAD underperformance relative to its peers [2].
Both sources agree that while the headline job loss is concerning, underlying indicators such as the unemployment rate and hours worked show some improvement [1][2]. RBC maintains a cautiously optimistic outlook for the medium term, expecting domestic demand to drive further labour market gains into 2027 [1]. In contrast, TD Securities focuses on the immediate market reaction, noting that the jobs weakness has capped gains for the CAD and is likely to result in continued underperformance [2].
No specific forward-looking statements from the Bank of Canada were cited, but both sources indicate that the current data is unlikely to prompt a significant shift in BoC policy in the near term [1][2].
CONCLUSION
Canada's August job losses have introduced renewed concerns about the labour market, but some underlying indicators remain positive. While RBC expects gradual improvement supported by domestic demand, TD Securities sees the Canadian Dollar underperforming due to weaker jobs data and stronger U.S. payrolls. The market impact is moderate, with no immediate policy changes anticipated from the Bank of Canada.