Canada’s sluggish economy has lost more than 100,000 jobs over the past two months amid a bitter trade war with the U.S., but economists say the hardest hit area has been the public sector, rather than industries directly impacted by tariffs.
Statistics Canada (StatCan) released its September Labour Force Survey on Friday, which found that employment declined by roughly 68,000 jobs last month, pushing the national unemployment rate up to 6.5 per cent from 6.4 per cent the previous month.
The decline follows a loss of more than 40,000 jobs in August, as Canadian businesses and consumers continue to grapple with the trade war fallout.
Sal Guatieri, Senior Economist and Director at BMO Capital Markets, told CTV News Channel Friday that the report was “quite disappointing.”
Public sector hit hardest
“The one interesting point here though that perhaps reduces the severity of the report is that all the job losses were in the public sector,” he said.
“That’s been a theme for all of this year. We now have total employment in Canada down 41,000 this year, but all of those are in the public sector.”
Guatieri noted that over half of the total job losses recorded in September came from the educational services sector.
“It does seem to be reflecting the fact that the immigration curbs have hit some colleges and schools, and they’ve been forced to lay off workers,” he said.
“And let’s face it, the labour force now has shrunk for this year because of those immigration curbs, so it may be a little harder for companies to actually find workers, so that’s another factor.”
Sébastien Mc Mahon, chief economist at iA Financial Group, told BNN Bloomberg Friday that the public sector job losses didn’t come as a big surprise given the federal government’s stated goal to reduce the public workforce.
Included in Prime Minister Mark Carney’s 2025 Liberal budget was a pledge to cut the federal workforce by 4.5 per cent, or 16,000 jobs, within three years.
“The actual (job loss) number is not as bad as the pullback in the public sector, so there’s a few other stories going on,” said Mc Mahon.
‘Surprisingly resilient’ economy
One of those stories, Mc Mahon argued, is that Canada’s economy as a whole has bent but hasn’t broken under the weight of U.S. tariffs and counter tariffs.
“This year with the tariff situation, Canada’s economy has been surprisingly resilient, we have to admit that,” he said.
“When you look at hours worked, you do see some solid momentum, when you look at trade outside of the U.S., especially for goods, we’re seeing some good momentum there, but this is not a booming economy for sure.”
Friday’s jobs report is one of the first major economic releases since trade tensions between Ottawa and Washington ratcheted back up.
While most job losses in September came from areas not directly impacted by the U.S.-Canada trade war, the heavily exposed manufacturing sector saw a net loss of 13,000 jobs.
Will the BoC raise rates this year?
Mc Mahon said the report takes an interest rate hike off the table at the Bank of Canada’s next policy decision later this month.
“Any odds that the Bank of Canada hikes by the end of the year – and we’ve been in the camp all year that the next hike will be in 2027, not this year – I think we can put those odds to rest,” he said.
Garnet Anderson, head of portfolio management at Tacita Capital, agrees with that sentiment.
“We were going to be surprised if they actually went forth with a hike, now it would be super surprising if they went forth with a hike in October, it doesn’t make sense,” he told BNN Bloomberg in a Friday interview.
Reuters reported on Friday that money markets are not expecting a rate hike from the Bank of Canada at its Oct. 28 meeting either, however traders are pricing in a 25-basis-point increase at the bank’s last meeting of 2026 in December.
With files from Reuters and The Canadian Press
