OTTAWA, Sept 4 (Reuters) - Canada's economy lost 41,700 jobs in August, data showed on Friday, slowing sharply from unusually strong summer hiring, while the unemployment rate held steady at 6.4%.
The August report is the last labor force survey before the effects of U.S. President Donald Trump's new 50% tariffs begin to filter through the economy.
The duties cover a relatively small share of Canada's exports but are concentrated in vulnerable industries including wood products, raising the risk that the recent momentum in the labor market could grind to a crawl.
"The rise in trade tensions between Canada and the U.S. has opened up the possibility of another wave of layoffs in trade-exposed sectors," said Royce Mendes, head of macro strategy at Desjardins, adding that trade relations remain the main downside risk to his forecasts on the economy.
Analysts polled by Reuters had forecast job gains of around 15,000, after 75,100 additions in July. The forecast for the unemployment rate was the same as reported.
MOST JOB LOSSES SEEN IN FULL-TIME EMPLOYMENT
The Canadian dollar was trading down 0.51% at C$1.3860 to the U.S. dollar, or 72.15 U.S. cents. Yields on 2-year government bonds firmed after the labor data, trading 1.3 basis points up at 2.469%.
Most of the job losses were observed in full-time employment, where positions shrank by 35,900, while part-time employment also saw reductions of 5,800 jobs, Statistics Canada said.
Recent hiring figures have been flattered by temporary factors such as census-related employment and jobs associated with the soccer World Cup, which resulted in additions of 181,000 jobs between April and July.
The gains of the past few months have also come as the broader economy has proved more resilient than expected through more than 18 months of U.S. trade restrictions, with widespread layoffs so far failing to materialize.
However, a new set of U.S. tariffs and Canada's retaliation coming into effect from early next week are expected to deflate some of the momentum.
UNEMPLOYMENT RATE STILL AT TWO-YEAR LOW
The service-producing industries, such as healthcare, education, transportation, and financing, employ four out of every five people in the labor force and bore the brunt of the employment decline in August.
The industries lost 51,500 jobs in August, led by business, building and support services and wholesale and retail trade, StatsCan said.
The unemployment rate continued to be at a two-year low.
Sluggish growth in the labor force due to tighter immigration rules and an ageing workforce has also deflated the unemployment level in the last few months.
The labor force, which stood at 22.63 million, shrank for the first time since February.
Youth unemployment edged up 0.3 percentage points to 12.9% in August, reversing a declining trend from April to July.
The growth rate of permanent employees' average hourly wages, a gauge of inflation, dropped to 2% in August from 3% last month, its lowest level in more than seven years outside of the pandemic.
"The sharp 41,700 fall in employment in August and further slowdown in wage growth pushes back against the idea that the economy has decisively turned a corner," Thomas Ryan, senior North American economist at Capital Economics, said.
Reporting by Promit Mukherjee; Editing by Dale Smith, Tomasz Janowski and Jan Harvey
