Canada’s labour market just sent a clear signal: the trade war is no longer an abstract headline—it’s hitting payrolls. In a succinct but consequential update, Claire Fan, Senior Economist at RBC Economics, connects the dots1 between escalating trade frictions, a cooling hiring backdrop, and what the Bank of Canada may do next.
“A 66k employment decline Canada in August was after a 41k contraction in July, and adds to evidence that the trade war is taking its toll on Canadian labour markets.”
Fan notes the summer slide mirrors what’s happening south of the border, where “job growth in the U.S. largely ground to a halt since May and the unemployment rate has also edged higher.” At home, Canada’s unemployment rate rose to 7.1%—“the highest in nearly a decade (outside of the pandemic).”
The Print: Weak Headline, Uneven Internals
The headline jobs number was ugly, but the composition was nuanced:
- “Most of the job losses were part-time,” while “actual hours worked edged up 0.1%.”
- The damage is concentrated where you’d expect tariff anxiety to bite: “weakness remained relatively concentrated in the trade exposed sectors of the economy– employment in manufacturing, transport and warehousing together shrank by 42k in August.”
Those sectoral cracks matter. They suggest the transmission channel from trade restrictions to Canadian labour demand is active—and accelerating—in precisely the industries tied most tightly to cross-border supply chains and goods movement.
Provinces & Cities: Southern Ontario Bears the Brunt
Geographically, the weakness clustered in three provinces:
- “August’s employment contraction came largely from declines in Ontario (-26,000 jobs), B.C. (-16,000) and Alberta (-14,000) while Quebec maintained stable employment.”
- Urban joblessness is climbing where exposure is highest: “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.”
Participation also slipped—“another drop in labour force participation rate to 65.1% which is 0.4% below where it was back in January”—amplifying the rise in the unemployment rate.
Who’s Losing Work: Core-Age Pullback, White-Collar Pain
The composition by age and industry deepens the concern:
- “The employment loss in August was mostly part-time but also entirely accounted for by a 93k decline in core-age jobs (25 to 54). The unemployment rate among this age group rose to 6.1%, from 5.6% in January ahead of the ramp up in international trade tensions.”
- Beyond goods-exposed categories, white-collar roles stumbled: “professional, scientific and technical services was another sector that saw notable job loss (-26k) in August.”
- Education gave back earlier gains—“lost 18k jobs but that merely reversed the gain in the prior month and is likely a product of volatile seasonal patterns in the summer.”
On pay, momentum is cooling: “Growth in average hourly earnings dropped back to 3.2% in August, resuming on the down trend (after ticking slightly higher in July) that coincides with broadly cooling hiring demand.”
Macro Implications: A Softer Engine, But Not a Stall
Despite the headline decline, Fan emphasizes that activity isn’t collapsing:
- “Despite the employment loss, the increase in hours worked is still in line with our forecast for marginal but positive growth in the economy over Q3 and Q4 (we expect an average rate of 0.6% on a quarter-over-quarter annualized basis.)”
Demographics are also shifting. “The population aged 15+ rose by 29k in June, softer than the ~50k pace over the first half of this year but still above increases in the quarterly demographics data.” RBC continues “to look for a slower pace in population growth going forward as the federal government works to curb arrivals from abroad, but not nearing zero until 2026 given lags in the Labour Force Survey due to methodology used to count non-permanent residents.”
Policy Watch: CPI September 16, BoC September 17
Rates are back in play. Fan is explicit:
- “Still, the negative job market report today increases the odds that the BoC could see fit to cut interest rates further.”
- “The the next CPI print in Canada set to release on September 16, the day before the next Bank of Canada meeting, will bear an unusual amount of weight as a deciding factor.”
- “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.”
Translation for markets: the inflation print has become a de facto swing vote. If CPI confirms disinflation while jobs wobble, the BoC’s “end of cycle” posture could prove flexible.
What Spreads vs. What Stays Contained
Fan’s base case avoids alarmism:
- “Going forward, condition in trade exposed sectors will likely continue to worsen but we don't expect that will spread and cause a sharp, broad-based contraction.”
Why the guardrails?
- “Relatively low average tariff rate on Canada among major U.S. trade partners thanks to CUSMA exemptions,” and
- “Healthy domestic consumer spending trends as reasons why we expect resilience in other sectors will help keep a floor under broader economic conditions.”
In other words, the shock is real but—thanks to trade agreement buffers and still-resilient households—likely to be contained rather than systemic.
Advisor Lens: How to Read This Tape
- Duration & Cuts: With unemployment rising and wages cooling, the policy bias tilts dovish at the margin. The CPI release on September 16—“will bear an unusual amount of weight.” Rate-sensitive assets could re-price if the BoC signals openness to “additional easing.”
- Sector Positioning: Expect ongoing relative pressure in “manufacturing, transport and warehousing,” and watch for spillover to adjacent supply-chain services. Meanwhile, domestically oriented sectors tethered to consumer demand should provide ballast if spending remains “healthy.”
- Core-Age Labour: A “93k” drop in core-age employment is a notable signal on underlying demand; it often correlates with slower capex and hiring pipelines—another reason to watch the white-collar complex after the “-26k” in professional services.
- Regional Exposure: Southern Ontario remains the epicentre of labour market stress; provincial and municipal program responses (training, mobility, support) could influence local outcomes through year-end.
The Bottom Line
Fan’s call is balanced but clear: the trade war is squeezing Canada’s most exposed industries, lifting unemployment and cooling earnings growth. Yet structural buffers—CUSMA’s tariff relief and resilient consumption—argue against a broad-based downturn. Policy now turns on a single data hinge:
“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.”
Until then, consider this a market running a two-track story: targeted weakness where trade bites, and enough domestic resilience to keep the broader economy—barely—on the front foot.
Footnote:
1 RBC Economics. "Trade war hit Canadian jobs in August" 5 Sept. 2025
