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Employment in Canada fell by 41,700 in August, reversing some of the labour market momentum observed in recent months as manufacturing posted the only significant increase.

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The jobless rate held steady at 6.4 per cent while employment losses were concentrated in Ontario and Quebec, Statistics Canada reported on Friday.

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The number of public sector employees fell for a third straight month, declining by 20,000 in August and 78,000 since May. Meanwhile, employment in manufacturing increased by 22,100, with most of that gain concentrated in Ontario.

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Economists surveyed by Bloomberg expected employment to increase by 15,000 and for the jobless rate to remain unchanged.

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While hiring stalled across most sectors last month, the broader trend in the job market shows the economy chugging along. Employment in August was up 217,000 from a year ago, helped by a surge in employment of 181,000 in the three-month period from the end of April to the end of July.

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Canada’s unemployment rate had edged down to 6.4 per cent in July, marking the lowest level in two years. The job market recovery is part of a broader economic rebound following a year-long slump brought on by US tariffs and slower immigration. Real gross domestic product in the second quarter also increased by an annualized rate of 3.3 per cent.

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However, the escalation of the US trade war is now bringing Canada’s economic recovery into question. The US imposed 50 per cent tariffs on $28 billion of Canadian goods on Aug. 21, and Canadian counter-levies are set to take effect next week.

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Bank of Canada Governor Tiff Macklem said this week that while Canada entered the latest trade tensions on a better footing, “uncertainty about the sustainability of the rebound has increased.”

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Although the broader economy is expected to withstand these latest levies, the pain from the tariffs is expected to be concentrated in some sectors, Macklem said.

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Friday’s report shows the layoff rate in industries dependent on US demand for exports averaged 0.9 per cent in the 12 months to August, compared to 0.7 per cent in other industries.

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The unemployment rate also ticked up for core-aged men in August, rising to 6 per cent from 5.8 per cent as more men between the ages of 25 and 54 years looked for work. Meanwhile, students returning to school this fall faced a more favourable job market this summer, with their unemployment rate down on average two percentage points between May and August, compared to last year.

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Average hourly wages for full-time permanent employees increased by 2 per cent on an annual basis, down from a 3 per cent pace the previous month and below economists’ estimate of 2.9 per cent.

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