There are two stories in Statistics Canada’s latest survey of the labour market. One is a story of resilience. The other: sacrifice.
Resilience first. Canadian workers logged more hours in July than they did in the same month a year earlier. It would have been difficult to find an economist at the beginning of 2025 with the courage to make such a mid-year prediction. Remember, President Donald Trump’s boot was supposed to have the Canadian economy begging for air by this point. Instead, some 55 per cent of employees polled by Statistics Canada said they felt “very confident” about their employment prospects.
That’s a diverse economy at work, a Canadian advantage that often is overlooked. The stuff that Trump likes to tariff gets all the attention, but four workers get paid to provide some form of service for every one that is employed in the production of automobile parts, steel, lumber and other tangible goods.
Manufacturing is also diverse; food and beverage processors generate more output and employ more people than any other segment in the industry. That might explain why manufacturing employment was little changed in July, despite another month of tariff chaos. Trump has gone after some high profile targets, but almost all of Canada’s trade with the U.S. is protected by the new North American trade agreement. Claire Fan, an economist at RBC, said in a note that while the labour market is “softer than usual,” the “bulk of tariff-related damage could already be done.”
The jobless rate held at 6.9 per cent in July, higher than anyone would like. But don’t let recency bias fool you. The average since the mid-1970s is about eight per cent. Fan’s characterization of the labour market echoes the Bank of Canada, which has acknowledged that while things aren’t great, neither are they falling apart. Bottom line: we’ve endured worse.
People like Fan are engaged in a lively debate about what it might take to keep surviving. Bay Street is split on whether staving off a recession will require lower interest rates. Economists at RBC and Bank of Nova Scotia have become increasingly confident in their predictions that the central bank’s rate-cutting cycle is over, and each found evidence in the latest hiring data to support their case.
Fan noted that the weakness was concentrated in the culture and construction industries, rather than sectors more directly exposed to trade. Scotiabank’s Derek Holt emphasized a big drop in “summer jobs,” which could be partly explained by wildfires wiping out seasonal employment. “This is an important point,” he told his clients in a note, as adults aged 25 and up are “more likely to be floating the economy.”
On the other side of the debate, Andrew Grantham at CIBC argued that a weaker employment rate justified an interest rate cut as soon as September, when Bank of Canada governor Tiff Macklem and his deputies next gather to consider policy. Statistics Canada calculated that 60.7 per cent of the working age population had a job in July, down from 60.9 per cent in June and the lowest since the summer of 2021.
Grantham’s point about the employment rate is a good transition to the second story in the hiring numbers, the one about sacrifice. The economy is holding its own against Trump’s economic belligerence, but potentially at the expense of the young. Employers mostly dumped younger workers in July. As a result, only 53.6 per cent of Canadians aged 15 to 24 were working in July, the lowest numbers since 1998, excluding the pandemic years of 2020 and 2021.
Maybe that tragic number can be explained in part by pervasive wildfires denying thousands of students the chance to earn a little money taking care of tourists and planting trees. But the gap between the total employment rate and the youth employment rate has been unusually wide since the latter half of 2023.
The after-effects of the COVID-19 pandemic, followed so closely by a trade war, might have left wounds that won’t easily heal. Economists call it “scarring.” Most workers are doing fine. But those who have lost their jobs are struggling to get off the sidelines. Of the 1.6 million people who were unemployed last month, almost 24 per cent had been searching for work for 27 weeks or more. That’s also the most since early 1998, excluding the pandemic. Those people are in danger of being left behind.
Same for younger workers. They’re being denied a chance to gain experience that would launch their careers. They might never get to put their degrees to use, and therefore might never meet their full potential. If the scarring is too deep, the economy’s potential to grow will also be limited.
I remember 1998. That’s roughly when I secured my first full-time job in journalism. It took me a minute. I graduated from university in 1996 and spent a year or so writing press releases. I went back to university and then managed to convince some people at The Canadian Press to hire me. I got lucky. The economy was picking up and CP was hiring interns for the first time in a while. A lot of talented journalism grads from earlier in the 1990s never got a chance. There were no jobs.
The debate over whether the Bank of Canada will cut interest rates is interesting, but monetary policy can’t do much for the economy from here. Macklem already has lowered borrowing costs a lot, so much so that anything more than a couple of additional quarter-point cuts would almost certainly cause inflation.
While marginally lower interest rates might stop the scarring, they won’t heal the wounds. That will have to come from governments. Policymakers have begun work on their fall budgets and fiscal updates. If they avoid having to deal with a recession, it won’t make the challenge ahead any easier. Their policy choices will determine what Canada looks like a generation from now.
Kevin Carmichael is The Logic’s economics columnist and editor-at-large. He has spent more than two decades covering economics, business and finance for outlets including Bloomberg News, The Globe and Mail and the Financial Post, where he also served as editor-in-chief.
