Canada’s unemployment rate jumped to 7.1 per cent in August, the highest jobless rate in over nine years outside of the pandemic, raising bets that the

Bank of Canada would cut its interest rate this month. The Canadian economy lost 66,000 jobs during the month, mostly in part-time work, with professional and technical services leading the declines, Statistics Canada said on Friday. Trade-sensitive sectors such as transportation and warehousing and manufacturing also recorded significant drops in employment.

Canadian Imperial Bank of Commerce senior economist Andrew Grantham said the weakness in the labour market is no longer just being driven by sectors sensitive to U.S. tariffs, suggesting that rate cuts could stimulate demand and hiring in the overall economy.

“The weaker than expected employment report saw financial markets pricing in a greater probability of a September interest rate cut, resulting in a decline in bond yields,” said Grantham, in a note to clients.

The Bank of Canada’s next interest rate decision is scheduled for Sept. 17. The central bank has held its policy rate at 2.75 per cent at three of its last meetings, citing continued trade uncertainty and evidence of underlying inflation as the reasons.

But Friday’s jobs report builds on last week’s report on Canada’s

gross domestic product (GDP) , that showed the economy contracted in the second quarter, with economic activity falling 1.6 per cent on annualized basis. A flash estimate for July has GDP growing by 0.1 per cent.

August’s drop in employment is the second consecutive monthly decline after the economy lost 41,000 jobs in July. There were 34,000 more unemployed people in August compared to the month before, and the layoff rate was one per cent, higher than the 0.9 per cent observed at the same time last year.

“The start of the trade war can be traced back to late January, and the economy has now lost a cumulative 38,500 jobs on net in those seven months, with manufacturing losing 58,100 (or three per cent),” said

Bank of Montreal chief economist Douglas Porter, in a note. “Meantime, the jobless rate has risen by half a point. All told, this weak report fully reinforces any bias for the Bank of Canada to ease somewhat further here, but inflation hasn’t quite given them the all-clear.”

Policy makers will get August’s inflation numbers the day before their rate decision. The consumer price index rose by 1.7 per cent in July, but measures of core inflation remained elevated. Still, the three-month average of CPI-trim and CPI-median came in at 2.4 per cent, indicate a slowing momentum.

Royal Bank of Canada senior economist Claire Fan said the inflation reading will “bear an unusual amount of weight as a deciding factor” for the central bank’s next move.

“Another softer inflation print could raise odds for additional easing relative to our current base case that assumes the Bank of Canada has already reached the end of the cycle,” she added, in a note.

In the meantime, the employment rate edged down by 0.2 per cent in August to 60.5 per cent and average hourly wages rose by 3.2 per cent on year-over-year basis, down from 3.3 per cent in July.

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The summer job market proved to be tough for young people, with the average unemployment rate for the summer returning students sitting at 17.9 per cent, the highest since 2009. The youth unemployment rate in August was 14.5 per cent, just 0.1 per cent below what it was in July.

On a provincial basis, Alberta’s jobless rate increased to 8.4 per cent in August, while British Columbia’s unemployment rate climbed to 6.2 per cent. The cities of Windsor at 11.1 per cent, Oshawa at nine per cent and Toronto at 8.9 per cent, continue to hold the highest jobless rates in the country.