Labour Market Stalls as Economy Loses Over 40,000 Jobs in July

The Canadian economy faced a significant setback in July. According to the Labour Force Survey released this week, the economy shed 41,000 jobs—largely in full-time work—partially offsetting an unexpected gain of 83,000 jobs in June. The unemployment rate held steady at 6.9% because the number of people in the labour force also declined, a concerning sign of discouraged workers.

The decline was concentrated among youth aged 15 to 24, who lost 34,000 positions. The youth employment rate fell to its lowest level since 1998, excluding the pandemic years. Notably, job losses were widespread, led by the information, culture, and recreation sector (-29,000) and construction (-22,000). Alberta and British Columbia saw the most significant job losses, down 17,000 and 16,000, respectively. Despite the job losses, average hourly wages rose by 3.3% on an annual basis, up slightly from June. The report, described by one chief economist as the "weakest in three years," will likely increase pressure on the Bank of Canada to consider a rate cut in September.

C$1.2 Billion Softwood Lumber Support Package

In a direct response to the ongoing U.S. tariffs and the strain on a key Canadian industry, the federal government this week announced a support package of up to C$1.2 billion to assist Canadian softwood lumber producers. The package is a strategic effort to aid the sector in navigating a decades-long trade dispute, which has intensified recently with U.S. countervailing and anti-dumping duties that have cost the Canadian industry billions of dollars.

The funding is structured around two key pillars. The first is a C$700 million loan guarantee program, designed to provide softwood lumber producers with the financing and credit support they need to maintain and restructure their operations during this volatile period. The second is a C$500 million fund for product and market diversification. This long-term, strategic component is intended to help the industry reduce its long-standing reliance on the U.S. market, which accounts for nearly 90% of Canadian softwood lumber exports. This includes accelerating product innovation, developing new export markets in fast-growing regions of Asia and Europe, and supporting Indigenous-led forestry business development. Announced by Prime Minister Mark Carney in British Columbia, where the struggling softwood lumber industry is a major employer, the package was welcomed by industry groups such as the B.C. Lumber Trade Council, which described it as "critical relief" during a challenging time. However, some industry leaders and opposition critics have called for a more comprehensive and lasting solution to the trade dispute, arguing that while the package is a valuable short-term measure, it does not resolve the underlying issue of ongoing U.S. tariffs.

Despite the high-profile announcement of a new 35% tariff on certain Canadian goods, a crucial exemption under the USMCA is expected to shield the vast majority of cross-border trade. According to government and analyst estimates, over 85% of Canada-U.S. trade remains tariff-free because it is compliant with the USMCA's rules of origin. These "rules of origin" are a key part of the trilateral agreement, requiring that a specific percentage of a product's value must originate from within North America to qualify for preferential, duty-free treatment. This mechanism is a significant departure from the previous NAFTA agreement, which had lower regional value content requirements, particularly for the automotive sector. For example, under the USMCA, an automobile must have 75% of its parts originating in North America, up from 62.5% under NAFTA, and a specified percentage of its manufacturing value must come from facilities paying at least $16 per hour.

While the majority of Canadian trade is protected, the new tariffs target products that are deemed "non-USMCA compliant." These are typically goods that contain a high percentage of non-North American content and do not meet the strict rules of origin requirements. As a result, products like certain textiles, apparel, and specialized manufactured goods that rely heavily on inputs from outside North America are most vulnerable to the new tariffs. This strategic approach by the U.S. administration allows them to impose a politically powerful tariff headline while preserving access to Canadian goods and energy that are essential to the U.S. economy and deeply integrated into American supply chains.

The burden of proving compliance rests on the exporter or importer, who must provide a certification of origin. This certification no longer requires a specific form like the previous NAFTA Certificate of Origin, but it must contain a minimum set of data elements that verify the product's North American content. For Canadian businesses, the key challenge is not just manufacturing their products in Canada, but also ensuring they have the proper documentation to prove their supply chain meets the USMCA's rules. This process has led to a flurry of activity for Canadian exporters and customs brokers, who are working to navigate the new rules and prevent their goods from being subjected to the new duties. Ultimately, the USMCA's rules of origin are acting as a powerful strategic shield, giving Canada a significant advantage over other nations that are now facing a broad-based 35% tariff on their exports to the U.S.

In a coordinated move to increase economic pressure on Russia, Canada joined the European Union and the United Kingdom this week in significantly lowering the price cap on seaborne Russian-origin oil. The new cap has been set at $47.60 per barrel, a notable reduction from the previous level of $60. This decision is a direct result of a G7-led effort to tighten the noose on Russia's ability to fund its war in Ukraine. The original price cap, implemented in December 2022, was a novel sanctions tool designed to achieve two goals simultaneously: to starve Russia of oil revenues while also keeping Russian oil flowing to the global market to prevent a major price spike that would hurt the global economy. By lowering the cap, the coalition aims to further exploit a major vulnerability for the Kremlin, as oil exports account for a significant portion of Russia's federal revenues.

The decision to cut the cap from $60 to $47.60 was based on new analysis that showed Russia's Urals crude was being traded at prices well below the previous $60 limit, making the original cap largely ineffective. The new, lower cap is intended to be more aggressive, directly hitting Russia's profits and forcing them to sell their oil for less. Canada's Department of Finance, which announced the decision, stated that the measure will take effect in early September and is part of a broader, sustained effort to use financial sanctions as a tool of foreign policy. The decision to participate in this lower cap aligns with Canada's long-standing position of being a staunch ally to Ukraine and a leader in applying sanctions against Russia.

While Canada, the EU, and the UK have agreed to the new cap, other key members of the "Price Cap Coalition" have not yet joined. Most notably, the United States and Japan have not signed on to the new, lower limit. This divergence in strategy could be a result of various domestic considerations, including concerns about global oil market stability and geopolitical sensitivities. However, Canada's participation, alongside its major European partners, sends a strong signal of resolve. The measure applies to all Canadian companies that provide services such as shipping, insurance, and financing for the transport of Russian oil, and it will effectively prevent them from facilitating any transactions above the new $47.60 per barrel limit.

Data To Watch

What’s Next for Canada’s Economy? Key Data Releases to Keep an Eye On.

These upcoming indicators could shift market sentiment, alter fiscal strategies, and impact regulatory decisions in real time. Stay ahead with these critical dates:

1. June Building Permits — August 12, 2025

This report provides a forward-looking indicator of construction activity and can shed light on the health of the housing and commercial real estate sectors, which have been a significant source of volatility in recent months.

2. MLS July Home Sales and Wholesale Trade — August 15, 2025

Signals real estate activity and underlying business demand—key for economic momentum.

3. July Consumer Price Index (CPI) — August 19, 2025

This is arguably the most important data point of the coming weeks. Analysts will be watching closely to see if a weakened Canadian dollar and higher import costs, in the wake of the new U.S. tariffs, are being passed on to consumers, which could influence the Bank of Canada's next rate decision.

Final Thoughts

This week's jobs report serves as a strong reminder that Canada's economy is on an uncertain path. With the Bank of Canada in a holding pattern and new U.S. tariffs now a reality, the economic landscape is more challenging than ever. The upcoming data releases on inflation and the Bank's internal deliberations will be vital for understanding the full picture. We will continue to bring you the most critical, up-to-the-minute analysis to help you not just weather the storm, but also to identify opportunities as they emerge. Join us next week to unpack Canada’s most pertinent headlines.