OTTAWA - Canada’s labour market was showing cracks in April as the early impacts of the tariff dispute with the United States started to appear in economic data.
Economists expect that weakness could persist through the summer in an uncertain trade war and some argue it could push the Bank of Canada off the sidelines and toward an interest rate cut in June.
The national unemployment rate ticked up to two tenths of a point to 6.9 per cent in April, Statistics Canada said Friday, returning to a recent high seen in November.
“This is the first major data reading for April, and it shows that tariffs are already taking a material bite out of the economy,” BMO chief economist Doug Porter said in a note to clients Friday.
Canada’s manufacturing industry led job losses in April, shedding 31,000 positions, with the bulk of the impact in Ontario. The wholesale and retail trade sector also lost some 27,000 jobs.
The hit came after the United States imposed tariffs starting in March on non-CUSMA compliant imports from Canada as well as sector-specific levies on steel and aluminum and automobiles.
Manufacturing-heavy Windsor, Ont., saw its unemployment rate jump 1.4 percentage points to 10.7 per cent last month, StatCan noted.
Nathan Janzen, assistant chief economist at RBC, said in an interview that while local employment data can be “volatile,” weakness is to be expected in communities that are weighted toward trade-sensitive sectors like auto manufacturing.
StatCan said the April figures showed the first significant decline in manufacturing jobs since November, though employment levels for the industry remain steady year-over-year.
While the economy did add 7,400 net new jobs in April, the rising unemployment rate suggests employers were not hiring as quickly as Canada’s population was growing.
StatCan noted that’s a reversal of earlier this year, when strong employment gains coincided with slowing population growth.
Offsetting the declines last month was a gain of 37,000 jobs in the public administration sector, which the agency said was largely temporary work tied to the federal election in April.
Janzen said the election hiring “flattered” the headline jobs number, and that without the temporary surge, employment likely would have outright declined nationally in April.
Derek Holt, vice-president and head of capital market economics at Scotiabank, said in a note that the details of the jobs data like the election hiring bump are “messy” and make the report difficult to trust.
He said the jump in full-time positions likely reflects retirees taking on some temporary work during the election — effects that will reverse come May.
StatCan said average hourly wages rose 3.4 per cent in April, down slightly from 3.6 per cent in March.
There were some positive surprises as well, Janzen said, such as an increase in total hours worked.
While RBC forecasts unemployment will continue to rise in the coming months — projected to peak at 7.1 per cent sometime this summer — Janzen said there are likely strong enough fundamentals to avoid a complete labour market crash.
“We do expect the unemployment rate to drift higher into the summer, but at the same time, we don’t really expect the bottom to fall out of the labour market,” he said.
“That’s still also highly contingent on not seeing further escalation in U.S. tariff policy.”
Despite economic uncertainty tied to the U.S. trade dispute, most workers were telling Statistics Canada they felt secure in their jobs.
Some 73.9 per cent of workers aged 15-69 disagreed when asked if they thought they’d lose their job in the next six months, though the proportion of those who felt otherwise was highest in industries reliant on exports to the United States.
The April job figures mark the last reading the Bank of Canada will get on the health of the labour market before its next interest rate decision set for June 4.
The central bank held its benchmark rate steady at 2.75 per cent at its decision last month, breaking a streak of seven consecutive cuts as it waited for more clarity on how Canada’s trade dispute with the United States would unfold.
Ali Jaffery, senior economist at CIBC, said in a note that the latest jobs report supports the case for a return to cuts in June.
“Overall, we are seeing a job market that was weak heading into the trade war, now looking like it could soon buckle,” Jaffery said.
Porter echoed that call, arguing the odds are now higher for a quarter-point cut in June.
Financial markets as of early Friday afternoon were pricing in odds of a 25-basis-point cut from the central bank in June at roughly 64 per cent, according to LSEG Data & Analytics.
Holt said he doesn’t believe the April jobs report will change the math for the Bank of Canada — in part because of the “messy” data, and in part because significant uncertainty still remains on the trade and fiscal fronts.
Janzen said signs of weakness in the labour market on their own aren’t enough to warrant a lower policy rate from the Bank of Canada right now.
He said the central bank has signalled that it can’t address weakness tied to the trade war on its own, and that there’s a larger role for fiscal policy to play in stimulus than monetary policy.
That said, Janzen also expects a quarter-point cut in June as a weaker labour market sets conditions for lower inflation in the months ahead.
“It lowers the bar to potentially cutting rates a bit further.”
This report by The Canadian Press was first published May 9, 2025.
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