A Sharp Jobs Pullback Hits Confidence
If it felt like the labor market was wobbling, September made it plain. Employment fell by 68,300 and the unemployment rate moved up to 6.5% from 6.4%. Economists in a Bloomberg survey had penciled in a 10,000 job gain and a 6.5% rate.
The retreat was led by the public sector, which shed 70,000 positions. Education took the biggest hit in that group, dropping by 35,300 roles. Healthcare and social assistance fell by 23,100, and manufacturing declined by 12,700. One bright spot: employment in "other services," including repair, maintenance, and personal or household services, increased by 17,000.
Since December 2025, total employment is down 41,200. That is the largest year-to-date setback since the 2009 financial crisis, aside from 2020 during the pandemic.
Participation slipped too, down 0.2 percentage points to 64.8%, the lowest since December 1997 excluding 2020. Statistics Canada points to population aging as the main driver and expects that trend to continue, even as older Canadians work more than prior cohorts. Wages for full-time permanent workers rose 2.3% from a year earlier, matching forecasts and up from 2% in August.
Tariffs Bite as Manufacturing and Education Struggle
September's report offers the first look at the hit from Section 338 trade measures. After negotiations collapsed, the U.S. imposed a 50% duty covering $20 billion in Canadian goods effective Aug. 22, and Canada followed with retaliatory tariffs on U.S. products starting Sept. 8. Losses across August and September sum to 110,000 jobs. For the third quarter, that leaves a net decline of 34,900.
Doug Porter, Bank of Montreal's chief economist, said the steep drop in education employment, centered in Quebec, could be tied to fewer international students. "The underlying picture in other regions and industries does not inspire confidence," he wrote, adding that "the pullback in manufacturing may be an early warning of the weight from the amped-up trade tussle."
Job losses concentrated in trade-exposed sectors tell a specific story. Market Briefs covers the labor market free every morning.
Markets Reprice and the Rate Path Gets Murkier
Bonds caught a bid, with the two-year Government of Canada yield slipping by 4 basis points to 3.203%. The Canadian dollar weakened, touching C$1.4299 per U.S. dollar, the softest since April 2025, before trimming the move to C$1.4276, off 0.3% a little after 9 a.m. in New York.
Ahead of the jobs print, overnight swaps had leaned toward a rate increase by December. Those expectations eased somewhat after the data.
The policy trade-offs are getting tougher. The trade dispute will likely weigh on growth, and the Bank of Canada has sharpened its focus on inflation threats as the Iran war drives energy prices up. Last month, Governor Tiff Macklem cautioned that delaying action might necessitate larger and quicker rate increases down the road. The bank gets one more inflation reading on Oct. 19 before its decision at month-end.
Servus Credit Union's chief economist, Charles St-Arnaud, said the apparent strength in headline data hasn't translated into job creation, complicating the central bank's task. "On one hand, the outlook for the domestic economy remains uncertain, with a weak labor market and a likely slowdown in growth in coming months because of the intensification of the trade war. On the other hand, high fuel prices risk fueling broader inflationary pressures." He expects the bank to favor "patience" and hold rates steady through year-end unless inflation broadens.
What It Means for Your Portfolio
The takeaway is a softer backdrop as trade tensions escalate: public sector roles and factories are under pressure, participation is sliding, and two months of losses total 110,000. Markets responded with lower short-term yields and a weaker loonie.
For everyday money decisions, that mix means rate moves are still in play while inflation remains a thorn. Watch the Oct. 19 inflation print and the Bank of Canada's end-of-month call for the next clues on borrowing costs and the currency.
Where employment falls matters more than the headline number. Get the free Market Briefs daily newsletter and read it properly.
