Canada Loses 68,300 Jobs in September as Unemployment Rises to 6.5%, Wiping Out the Year’s Employment Gains

Canada’s labour market suffered a sharp setback in September, losing a net 68,300 jobs in a single month and pushing the unemployment rate up to 6.5 per cent, according to official data released on Friday. The result stunned forecasters, wiped out every job gain recorded this year, and immediately sharpened the debate over what the Bank of Canada should do at its policy meeting later this month.

The September Labour Force Survey, published by Statistics Canada, marks the second consecutive month of job losses after the economy shed 41,700 positions in August. The combined two-month decline of roughly 110,000 positions has rolled back more than half of the employment gains made during the spring and early summer, and leaves the country with a net loss of 41,200 jobs so far this year — a stark contrast to the gain of 211,300 recorded over the same period last year, according to Reuters.

The unemployment rate ticked up by a tenth of a percentage point to 6.5 per cent, returning to where it stood in June and at the start of the year, though still below the recent peak of 6.9 per cent reached in April, the Wall Street Journal reported. The rise would have been sharper still had the labour-force participation rate not fallen: the share of Canadians aged 15 and older who were either working or looking for work slipped 0.2 percentage points to 64.8 per cent, its lowest level since December 1997 outside the pandemic era, according to Statistics Canada.

The losses were almost evenly split between full-time employment, which fell by 35,000, and part-time work, which declined by 33,000, according to Statistics Canada. On a year-over-year basis, total employment was still up by 95,000, or 0.5 per cent — but the momentum has clearly reversed.

Youth and public-sector workers bear the brunt

Young Canadians absorbed much of the damage. Employment among those aged 15 to 24 fell by 48,000 in September, bringing the two-month decline for that group to 67,000. The youth unemployment rate held steady at 13 per cent — but only because fewer young people were participating in the labour force at all, according to Statistics Canada. Finding a first job has become measurably harder: the job-finding rate, the proportion of people unemployed in August who had found work by September, fell to 30.6 per cent, down from 32.8 per cent a year earlier and well below the pre-pandemic average of 36.5 per cent seen from 2017 to 2019.

Women aged 25 to 54 also had a difficult month, with employment falling by 28,000 and their unemployment rate rising to 5.3 per cent, according to Statistics Canada.

By industry, educational services recorded the largest decline, losing 35,000 positions in September. Statistics Canada said a smaller number of international students arriving in the country was one of the reasons behind the drop. Health care and social assistance shed 23,000 jobs — its first monthly decrease since December 2022 — while manufacturing lost about 12,700 positions, according to Reuters. Together, educational services and health care, which form a substantial share of public-sector employment, accounted for a combined 58,400 lost jobs, meaning the biggest drop came from public-sector employees, Reuters reported. Employment in “other services”, including repair, maintenance and personal services, rose by 17,000, partly offsetting the losses.

Not every region moved in the same direction. Alberta added 23,000 jobs in September even as the national total fell, according to Todo Canada’s analysis of the figures — a reminder that Canada’s resource-heavy western economy is moving on a different track from the rest of the country.

The headline numbers confounded economists. Analysts polled by Reuters had forecast a modest gain of 9,200 jobs and expected the unemployment rate to land at 6.5 per cent. Instead, the country posted one of its largest single-month employment declines outside a recession.

The tariff question

September was the first full month of employment data since a new set of United States tariffs on Canadian goods took effect in late August, and the report was expected to offer the first clear read on their impact. Surprisingly, the damage was not concentrated in trade-exposed industries. Job losses were not significantly higher in US-facing industries, Reuters reported, citing the data — and economists quoted by the agency said the new tariffs affect only a small slice of US-dependent employment and are unlikely to leave a major mark on the employment figures in the coming months.

That said, the broader trade dispute continues to weigh on confidence. Manufacturing, part of which is exposed to American demand, recorded a net decline of about 12,700 jobs in September, and the Bank of Canada has already flagged the escalation in trade tensions between Canada and the US as a risk to growth.

Meanwhile, wages offered a faintly reassuring signal on the inflation front: the growth rate of average hourly wages for permanent employees edged up to 2.3 per cent year on year in September from 2.0 per cent in August, according to Statistics Canada, via Reuters. That remains modest enough not to alarm policymakers watching for wage-price pressure.

A market jolt: loonie sinks, bond yields fall

Financial markets reacted immediately. The Canadian dollar fell to an 18-month low against the US dollar after the release, trading around C$1.4287 to the greenback, Reuters reported. Canadian government bond yields fell as traders priced in weaker growth, with the two-year yield dropping more than eight basis points, while the equivalent US yield stood roughly 160 basis points higher — a wide gap that continues to weigh on the loonie even as higher oil prices offer some support.

The jobs data also reshuffled expectations for monetary policy. This September report is the last employment release before the Bank of Canada’s monetary policy decision at the end of this month. Money markets are pricing in no rate hike in October, with expectations of a 25-basis-point increase in December having crept up before the jobs numbers were released, Reuters reported. The Bank of Canada has held its policy rate at 2.25 per cent since October 2025 and faces a difficult balancing act: underlying inflation is running close to its 2 per cent target while headline consumer prices steadied at 3 per cent year on year in August, and energy-price spikes have kept inflation risks alive even as the labour market softens.

The contrast with the United States adds another layer. While the Bank of Canada debates whether to tighten at all, the US Federal Reserve remains firmly hawkish: St. Louis Fed President Alberto Musalem said this week that more policy firming would be required to bring inflation back to target, and Fed Governor Christopher Waller signalled additional hikes if data evolve as expected, according to market reports. The US 10-year Treasury yield has traded above 5.2 per cent, and the US dollar sits near an 18-month high.

Analysis: Why It Matters

September’s jobs report is significant not just for its size but for what it reveals about the character of Canada’s slowdown — and about the choices facing its central bank.

1. The weakness is spreading, not concentrated. In a healthy correction, job losses are usually clustered — a factory town here, a cyclical sector there. This month’s losses, by contrast, were broad and led by public-sector-adjacent services: education and health care. That is unusual. It suggests the slowdown is being driven less by tariffs hitting factory gates and more by a general softening in domestic demand, combined with structural shifts such as fewer international students. For policymakers, a broad-based slowdown is harder to fix with targeted measures — and harder to dismiss as a one-off.

2. Young Canadians are paying the price. The most troubling line in the data is the youth picture: 67,000 fewer employed young people over two months, a 13 per cent unemployment rate, and a job-finding rate far below pre-pandemic norms. Recessions that begin by hollowing out youth employment tend to leave lasting scars — delayed career starts, lower lifetime earnings, and a generation that loses faith in the labour market. The Bank of Canada does not set policy for youth unemployment specifically, but a deteriorating entry-level jobs market is an early warning that demand is failing at the margins, exactly where monetary policy should be most attentive.

3. The tariff story is more complicated than it looked. Much commentary had positioned September’s report as a verdict on the new American tariffs. The data did not cooperate: trade-exposed industries were not the epicentre. That does not mean tariffs are harmless — business surveys consistently show they depress investment and hiring intentions — but it does mean Canada’s labour market problems run deeper than a single trade dispute. Attributing everything to Washington would be a convenient excuse; the domestic numbers do not support it.

4. The Bank of Canada is being boxed in. Governor-led central banks in this position face what economists call an unpleasant mix: growth is clearly weakening, yet headline inflation at 3 per cent sits above target and energy prices are climbing on Middle East tensions. Raising rates into a weakening labour market risks tipping Canada into a downturn; holding steady while the Fed keeps tightening risks a weaker currency and imported inflation through higher import prices. The jobs report tilts the argument toward patience — but it does not resolve the dilemma. The October 28 decision will be one of the most closely watched of the year.

5. A North American divergence is opening. With the US still adding pressure through hawkish Fed rhetoric and Canada’s labour market shedding jobs, the two economies are pulling apart. A weaker loonie helps exporters on paper, but in a trade environment where tariffs blunt that advantage, the currency mostly buys imported inflation. The divergence also complicates the Bank of Canada’s communication: explaining why Canada needs a different policy path than its much larger neighbour is a messaging challenge in itself.

What to watch next

The immediate calendar is crowded. The Bank of Canada announces its rate decision on October 28, and every speech from its officials between now and then will be parsed for clues about how much weight they place on this report. The October Labour Force Survey, due in early November, will show whether September was a blip or the start of a trend — two bad months can be noise, but three would be a pattern. Wage growth bears watching too: if hourly pay accelerates from here, the case for a December hike strengthens; if it cools, the case for holding grows.

Beyond the data, two political variables matter. First, the trajectory of the US-Canada trade dispute: further tariff escalation would hit exactly the manufacturing and export jobs that have so far proved resilient. Second, federal and provincial fiscal policy — with the public sector itself now shedding jobs, government budgets will face pressure to either support employment or accept further weakness.

Canada’s labour market entered 2026 in decent shape. Nine months in, it has quietly given back the year’s gains and then some. The question for the final quarter is whether September was the bottom — or the beginning.

Sources

• Reuters — “Canada’s employment surprisingly shrinks in September, jobless rate inches up” (Oct 9, 2026): https://www.reuters.com/world/americas/canadas-employment-surprisingly-shrinks-september-jobless-rate-inches-up-2026-10-09/
• The Wall Street Journal — “Canada Jobless Rate Edges Up With Another Drop in Employment” (Oct 9, 2026): https://www.wsj.com/economy/jobs/canada-jobless-rate-edges-up-with-another-drop-in-employment-a58c642d
• Todo Canada — “Alberta Adds 23,000 Jobs as Canada Loses 68,000 and Unemployment Rises to 6.5% in September” (Oct 9, 2026): https://www.todocanada.ca/alberta-adds-23000-jobs-as-canada-loses-68000-and-unemployment-rises-to-6-5-in-september/