Canada’s economy shed a net 68,300 jobs in September, Statistics Canada reported Friday, sharply missing economists’ expectations for a gain of 9,200. The decline followed a loss of 41,700 jobs in August, bringing two-month employment losses to 110,000 and erasing all the employment gains recorded earlier this year. The unemployment rate edged up to 6.5 percent from 6.4 percent, and youth employment fell by 48,000 as the labour force participation rate dropped to 64.8 percent.
The Canadian dollar sank 0.4 percent to 1.4275 per US dollar, touching 1.4298 for its weakest intraday level since April 2025, and was on track for a fifth straight weekly decline. Two-year government bond yields fell 6.8 basis points to 3.183 percent, widening the gap to the equivalent US rate to about 161 basis points, the widest since February 2025. Money markets cut the probability of an October 28 Bank of Canada hike to 25 percent from 40 percent before the report, while still pricing a quarter-point increase in December.
The composition of the losses clouds the reading. September was the first full month after a new round of US tariffs took effect against Canada, but the biggest drops came in the public sector, particularly healthcare, social assistance and education, as the government cut international student permits. Manufacturing, the sector most exposed to US tariffs, lost a net 12,700 jobs. Economists said the tariffs are unlikely to drive major employment effects in coming months.
The print puts the Bank of Canada in a bind ahead of its October 28 decision. The central bank has said it is prepared to raise borrowing costs multiple times if inflation stays too high, and BMO’s Douglas Porter argued the appropriate stance is “watchful waiting” with employment suddenly clouding over. Desjardins’ Royce Mendes expects rates unchanged this month but warns higher energy prices could begin feeding other inflation categories this fall and force a tightening soon. Governor Macklem’s fireside chat on October 14 is his next public outing before the decision.