Canada’s employment unexpectedly shrinks in September, jobless rate inches up

Canada's economy shed 68,300 jobs in September, according to data released on Friday, bringing the unemployment rate up slightly. The job losses followed a decline of 41,700 positions in August, erasing all gains recorded earlier in the year. September marked the first full month since new US tariffs took effect against Canada. The largest job reductions occurred in the public sector, especially within healthcare, social assistance, and education, as the government restricted international student permits.

Analysts had predicted a job increase of 9,200 and an unemployment rate of 6.5% in September, but the actual outcome was a decrease. This brings the nation's employment total down by 41,200 jobs so far this year, compared to a gain of 211,300 in the same period last year. Job losses were roughly split between full-time and part-time roles.

Manufacturing, which was partly affected by the US tariffs, saw a net loss of 12,700 jobs. Economists believe the recent US tariffs are unlikely to significantly impact job figures in the coming months. Money markets are no longer anticipating a Bank of Canada rate increase this month, although they do expect a 25-basis-point hike in December.

Given the recent slowing labor market, Canadian central bankers may maintain interest rates as is later in October, according to Royce Mendes, head of macro strategy at Desjardins. However, analysts predict that rising energy prices could fuel inflation in other sectors, potentially prompting earlier policy tightening. The labor force participation rate, which represents the proportion of the population either employed or actively seeking work, declined by 0.2 percentage points to 64.8% in September, marking its lowest level in 29 years, excluding the pandemic period.

This decrease was largely due to an aging population exiting the workforce and slower immigration reducing the workforce replacement rate. Employment among young people aged 15-24 dropped by 48,000 in September, following a smaller decline in August. Year-on-year wage growth for permanent employees, a key indicator of inflationary pressure, increased to 2.3% in September from 2.0% in August.

The Canadian dollar weakened following the report, slipping 0.44% to C$1.4287 per US dollar, or 69.99 US cents. Two-year Canadian government bond yields decreased by 9.5 basis points to 2.410%.