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Canada’s economy unexpectedly lost 42,000 jobs in August, leading economists to say the Bank of Canada and Canadians in general may have celebrated previous positive growth reports too early.
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As a result, many economists expect the Bank of Canada to keep rates at 2.25 per cent, something it did this week for the seventh time in a row.
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Here’s what economists have to say about the latest jobs numbers and what policymakers might do next.
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Cool August after a ‘hot’ July: CIBC
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The labour market cooled down in August after a “hot” July, Andrew Grantham, an economist at Canadian Imperial Bank of Commerce, said, as it gave back more than half of the jobs it gained that month.
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The 42,000-job decline was below market expectations of an increase of 15,000.
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“Today’s print seems to tally with other evidence (exports, monthly gross domestic product) that the economy is slowing again in quarter three following a strong second quarter and with heightened uncertainty regarding U.S. trade,” he said in a note on Friday.
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As a result, CIBC continues to expect the Bank of Canada to hold interest rates even as policymakers expressed greater concern over the inflation outlook this week.
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‘Premature’ hawkishness: Capital Economics
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The decline in jobs in August pushes back against the idea that the economy has decisively turned a corner and leaves the Bank of Canada’s hawkish shift this week — when it announced a hold on interest rates, but also talked about a potential increase if the future if the war on Iran continues — look somewhat premature, Thomas Ryan, an economist from Capital Economics, said.
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But he said the magnitude of the job loss isn’t as bad as it looks.
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“Hiring had been stronger than the underlying economy would have suggested over the summer, partly because of an unusually strong season for youth workers,” he said in a note on Friday.
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He said the weakness in the numbers was entirely concentrated in services, which may reflect some payback following the Fifa World Cup.
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Bank of Canada to remain on sidelines: Oxford Economics
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The decline in the number of jobs was much weaker than consensus, but it was roughly in line with Oxford Economics Ltd.’s estimates.
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“We expect the economy will continue struggling to create jobs in the near term as mounting headwinds from new U.S.-Canada tariffs,” Tony Stillo, director of Canada economics at Oxford Economics, said in a note on Friday.
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“Greater uncertainty from a flare-up in the trade war and the ongoing Iran conflict and a shrinking population weigh on hiring.”
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He expects the Bank of Canada to remain on the sidelines as far as interest rates are concerned for the rest of 2026 and most of 2027.
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‘Outlook murky’: RSM Canada
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The trend in the jobs numbers over the past year has tended to show decreasing unemployment one month followed by moderate job gains, RSM Canada economist Tu Nguyen said, but August had an unexpected downturn.