MNI: Trade War Looms Over Canada's Summer Job Market Stumble

Canada's job market provided some of the sharpest evidence yet of U.S. trade war damage with employment unexpectedly dropping in August on declines in manufacturing and transportation, a warning sign ahead of the central bank's rate decision later this month.

Employment fell by a net 65,500 after a 40,800 decline in July, versus economist predictions for a gain of 10,000. That swung the year-to-date total to a decline of 38,500. While that's a slim fall of 0.2% among total jobs it's the worst result since the global financial crisis in 2009 outside of pandemic shutdowns.

Transportation and warehousing employment fell by about 23,000 and manufacturing by 19,000, industries most affected by the most punishing U.S. tariffs on autos and metals. Big cities with the highest unemployment rates are also ones with major auto facilities, with Windsor at 11.1%, Oshawa at 9.0% and Toronto at 8.9%.

The unemployment rate that's a closer indicator of slack tracked by Bank of Canada also weakened more than expected, climbing to 7.1% from 6.9% instead of the 7.0% economists predicted. The jobless rate is the highest since 2016 excluding the pandemic. Total hours worked were little changed in August and up 0.9% from a year ago, another indicator of a flat economy.

Governor Tiff Macklem held the Bank's key lending rate at 2.75% for a third meeting in July saying he can move again if the trade war does more damage and inflation remains under control. The Bank has a single mandate to keep inflation at 2% and while headline prices are near that mark core inflation is running around 2.5% to 3%. 

Assessing balance in the job market is clouded by the government's move to curb record immigration that pushed labor supply ahead of demand, partly because it's unclear exactly what will happen to population growth. Still, weakness in the employment rate that strips out population swings also points to weakness. At the same time, the economy has mostly defied investor bets on a recession over the last year and a half.

Full-time employment fell by 6,000 in August and lower-paying part-time jobs took most of the hit with a 59,700 decline.