Canada Loses 42,000 Jobs as Labour Market Misses Expectations

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Canada’s labour market delivered an unwelcome surprise in August, interrupting several months of improving employment with a much sharper decline than economists had anticipated. Employment fell by 42,000 positions, or 0.2%, while the national employment rate slipped to 60.8%. Expectations had pointed instead to an increase of roughly 15,000 jobs.

Yet the headline decline does not tell the entire story. The unemployment rate stayed at 6.4%, manufacturing added workers, and total hours worked increased despite the drop in employment. At the same time, weaker participation, slower wage growth and persistent long-term unemployment showed why the latest numbers cannot simply be dismissed as monthly volatility. The result leaves Canada with a labour market that has improved from its weaker 2025 position, but remains vulnerable as businesses confront slower population growth, changing hiring patterns and renewed uncertainty around Canada-U.S. trade.

A 42,000-Job Decline Was Far Below Expectations

Statistics Canada estimated that employment fell by 41,700 in August, conventionally rounded to 42,000, bringing total employment to about 21.17 million. That represented a 0.2% monthly decline. The surprise was significant because economists had generally expected employment to rise by approximately 15,000. Instead of another month of expansion, the economy delivered a swing of roughly 57,000 positions relative to the consensus forecast.

The disappointing month also broke a stronger run earlier in the summer. Employment had increased by a cumulative 181,000 from April through July, including a 75,000 increase in July alone. That makes August look partly like a reversal of unusually strong preceding months rather than evidence that employment has suddenly entered free fall. Even after the monthly decline, employment remained 217,000, or 1.0%, higher than a year earlier. The more cautious interpretation is therefore that momentum weakened noticeably in August, while the broader labour-market picture remains mixed rather than uniformly negative.

Why Unemployment Stayed at 6.4% Despite the Job Losses

At first glance, losing 42,000 jobs without an increase in the unemployment rate may seem contradictory. The explanation lies in what happened to the size of the labour force. Canada’s labour force declined by approximately 36,800 people in August, while the number classified as unemployed increased by only about 4,800. With fewer people either working or actively searching for work, the unemployment rate remained at 6.4%.

The participation rate consequently slipped by 0.1 percentage points to 65.0%. That rate measures the share of the population aged 15 and older that is either employed or actively looking for employment. This distinction matters because a stable unemployment rate does not necessarily mean hiring conditions were unchanged. Canada had recorded three consecutive monthly declines in unemployment from May through July, totalling half a percentage point. August preserved that lower headline rate, but it did so partly because labour-force participation weakened. For households watching the job market, that creates a more complicated picture than the steady 6.4% number alone suggests.

Full-Time Work Took Most of the Hit

The quality of August’s employment decline also deserves attention. Full-time employment dropped by approximately 35,900 positions, accounting for most of the overall loss. Part-time employment fell by another 5,800. A decline concentrated in full-time positions can attract more attention than an equivalent drop dominated by part-time work because full-time employment typically represents a larger share of household earnings and economic activity.

Changes were visible across different categories of workers as well. Public-sector employment declined by 20,000 in August, marking a third consecutive monthly drop. Since May, the number of public-sector employees has fallen by approximately 78,000, or 1.7%. Private-sector employment was down numerically by about 22,800 in August, although Statistics Canada classified the change as little changed because of statistical variability. Self-employment was also essentially unchanged. Over the previous 12 months, however, private-sector employment remained 156,000 higher and self-employment was up roughly 80,000, demonstrating how different the monthly and longer-term signals can appear.

Manufacturing Was the Major Bright Spot

The losses were spread across several industries, but they were not universal. Business, building and other support services recorded the largest statistically significant decline, losing approximately 20,000 positions, or 2.8%. Public administration fell by about 8,800, natural resources by 7,700 and utilities by 5,600. Other sectors also registered numerical declines, though not all month-to-month changes were statistically significant.

Manufacturing moved in the opposite direction. Employment in the sector increased by roughly 22,000, or 1.2%, making it the only industry with a statistically significant gain in August. Approximately 14,000 of those additional manufacturing positions were in Ontario. Longer-term figures also illustrate why one monthly report needs context. Health care and social assistance employment was up 129,000 from a year earlier, while information, culture and recreation gained 49,000 and transportation and warehousing added 47,000. Wholesale and retail trade, by contrast, was down about 55,000 year over year. Canada’s labour market is therefore shifting substantially beneath the national headline.

Quebec and Ontario Accounted for Much of the Weakness

The national decline was heavily concentrated in Canada’s two most populous provinces. Quebec lost approximately 19,000 jobs in August, a 0.4% decline. Montréal accounted for about 21,000 fewer positions during the month. Quebec was also the only province with lower employment than a year earlier, recording a year-over-year decline of roughly 54,000 positions. Its unemployment rate nevertheless remained unchanged at 5.6%.

Ontario employment fell by about 18,000, or 0.2%, but its longer-term trend was considerably stronger. Employment in the province remained 116,000 higher than in August 2025, and Ontario had gained a net 119,000 positions between March and July. Its unemployment rate stood at 6.9% in August. Toronto’s unemployment rate was 6.7%, well below its recent 9.0% peak recorded in July 2025. New Brunswick provided one of the few provincial increases, adding approximately 2,400 jobs. The provincial figures show that Canada’s 42,000-job loss was not evenly distributed across the country.

Younger Canadians Remain Under Greater Pressure

Young workers continued to face a substantially tougher labour market than older Canadians. Employment among people aged 15 to 24 declined by approximately 19,000 in August. The youth unemployment rate moved up 0.3 percentage points to 12.9%, more than double the national rate. Although that was an improvement from 14.3% a year earlier, it remained above the 10.8% average recorded between 2017 and 2019.

The summer employment picture was somewhat better for students planning to return to school. Their unemployment rate stood at 15.6% in August, compared with 16.9% a year earlier. Even so, younger workers tend to feel employment slowdowns more quickly because they are heavily represented in industries offering entry-level, temporary and customer-facing positions. TD Economics has also pointed to weakness in industries traditionally employing younger workers and possible changes in workplace organization that can reduce entry-level opportunities. For a recent graduate or teenager looking for a first substantial job, the broader improvement from last year therefore does not necessarily translate into an easy search.

Core-Age Men and Women Saw Different Labour-Market Movements

The August numbers also diverged noticeably by gender among Canadians aged 25 to 54. The unemployment rate for core-aged men rose by 0.2 percentage points to 6.0%. Employment for men in this group was essentially unchanged, but more entered the labour force and began searching for work, which pushed the unemployment rate higher. Their employment rate remained at a comparatively high 86.5%.

Core-aged women experienced a different pattern. Their unemployment rate fell by 0.2 percentage points to 5.0%, yet employment also edged lower by roughly 17,000. The reason was a 31,000-person decline in the female core-age labour force, which reduced the number actively seeking employment. Their employment rate slipped to 80.9%. Even after that monthly decline, it remained 1.5 percentage points above its level a year earlier and above the 79.1% average recorded from 2017 through 2019. These contrasting movements reinforce why a lower unemployment rate cannot automatically be interpreted as stronger employment conditions without examining participation as well.

Wage Growth Slowed to Its Weakest Pace in Years

Workers who remained employed received another important signal from the August release: wage growth cooled sharply. Average hourly wages rose 2.0% from a year earlier to $37.02. That was down from 2.8% annual growth in July and 3.3% in June, marking the second consecutive month of deceleration. Excluding the unusual pandemic-era comparison in 2021, Statistics Canada said the August pace was the slowest since November 2017.

Lower-paid workers experienced particularly modest gains. Average hourly earnings for employees in the bottom quarter of the wage distribution rose only 1.1% from a year earlier, reaching $18.66. Workers in the second-lowest quarter saw wages increase 1.3% to $26.61. The two higher wage groups each recorded increases of about 2.1%. Wage growth had averaged 4.9% during 2023 and 2024 before slowing to an average 3.4% in 2025. August therefore represents a significant normalization from the unusually rapid wage increases seen earlier in the post-pandemic period.

Long-Term Unemployment Remains a Bigger Concern Than Layoffs

Canada’s job market does not currently look like one experiencing a wave of mass layoffs. The layoff rate was 0.8% in August, slightly below the 1.0% recorded a year earlier and close to the 0.9% average for comparable months between 2017 and 2019. That helps explain why economists have been cautious about interpreting one weak monthly employment figure as evidence of a severe downturn.

Finding another job, however, can still take considerably longer than it did before the pandemic. Roughly 1.5 million Canadians were unemployed in August, and 24.0% of them had been searching continuously for at least 27 weeks. The comparable figure was 23.0% a year earlier and only 17.1% on average between 2017 and 2019. That distinction matters greatly in everyday terms. A labour market can produce relatively few layoffs while still being difficult for people who are already unemployed, changing careers or entering the workforce. Elevated long-term unemployment indicates that the challenge increasingly lies in moving into new jobs, rather than simply avoiding dismissal from existing ones.

The Report Does Not Erase the Recovery — but Trade Risks Now Loom Larger

August’s decline came after 181,000 jobs were added from April through July, while employment remained 217,000 higher than a year earlier. RBC Economics calculated that year-to-date employment growth was still positive, though modest, at roughly 27,000 positions. Another encouraging detail was total hours worked, which increased 0.6% in August after a similar gain in July. RBC estimated that hours worked were running at an annualized 5% increase for the third quarter to date, suggesting economic activity may be holding up better than the employment headline implies.

The risk is what comes next. Statistics Canada found that industries dependent on U.S. export demand had averaged a 0.9% layoff rate over the previous year, compared with 0.7% elsewhere. New U.S. tariffs arrived too late in August to have much influence on this employment report, meaning their effects remain largely ahead. Two days before the jobs numbers were released, the Bank of Canada held its policy rate at 2.25%, citing subdued labour demand and continuing excess economic capacity while also worrying about inflation. TD Economics said after the employment release that it still expected the Bank to remain on hold. August’s 42,000-job decline therefore adds another warning sign, but not yet a clear signal of either recession or an imminent interest-rate cut.

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