Canada sheds tens of thousands of jobs as tariffs dent hiring plans

The economy shed 40,800 jobs in July, compared with a net addition of 83,000 jobs in June, taking the employment rate, or the percentage of people employed out of the total working-age population, to 60.7%, Statistics Canada said.

The unemployment rate, however, remained steady at a near multi-year high of 6.9%.

Analysts polled by Reuters had forecast the economy would add 13,500 jobs and the unemployment rate would tick up to 7%.

"Canada's labor market snapped back to reality in July," Michael Davenport, senior economist at Oxford Economics, wrote in a note.

U.S. President Donald Trump's sectoral tariffs on steel, aluminum and autos have hit the manufacturing sector hard and reduced the hiring intentions of companies, the Bank of Canada has previously said.

The number of people employed in manufacturing shrank by close to 10,000 in July on a yearly basis as sectors linked to steel, aluminum and autos curtailed hiring and experienced layoffs.

Marty Warren, the United Steelworkers' national director for Canada, told Reuters that about 1,000 members have been laid off.

Oxford Economics' Davenport predicts more layoffs in the coming months, forecasting about 140,000 lost jobs and an unemployment rate rising to the mid-7% range later this year.

Employment in some areas has held up well despite tariffs, the data showed.

Overall, there has been little net employment growth since the beginning of the year, StatsCan said. The layoff rate was virtually unchanged at 1.1% in July compared with 12 months earlier.

The bulk of the job losses in July occurred among workers aged between 15 and 24 - that group's unemployment rate edged up to 14.6%, the highest since September 2010 excluding the pandemic years of 2020 and 2021.

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The youth unemployment rate is usually higher than the country's average.

The employment rate for this group, which accounts for around 15% of the total working-age population, sank to 53.6%, the lowest level since November 1998 if the pandemic years are excluded.

The Bank of Canada kept its key policy rate unchanged last week, partly due to a strong labor market but indicated it might reduce lending rates if inflation stays under control and economic growth weakens.

"We are now a bit more confident in our view that the Bank of Canada will resume cutting next month, although a surprisingly strong CPI (Consumer Price Index) print next week could prompt another pause," said Alexandra Brown, North America economist at Capital Economics.

Money market bets show the odds of a rate cut at the next monetary policy meeting on September 17 at 38%, up 11 percentage points from Thursday. 0#CADIRPR

The Canadian dollar CAD= was trading down 0.07% to 1.3753 against the dollar, or 72.71 U.S. cents.

The information, culture and recreation sector lost 29,000 jobs last month, marking the biggest decline, followed by 22,000 lost jobs in construction and 19,000 in business, building and other support services.

The average hourly wage of permanent employees - a gauge closely tracked by the Bank of Canada to ascertain inflationary trends - grew by 3.5% in July to C$37.66 per hour, against a 3.2% increase in the prior month.