Canada: July Job Gains Offer Relief, With Ground Still to Cover

Canadian employment increased 75k in July, extending the modest gain recorded in June and reversing earlier-year losses. Employment now sits 69k above its December 2025 level and 197k higher than a year ago, with the year-over-year increase largely driven by private-sector hiring (graph 1).

The July increase was more consistent with a rebound than a sustained reacceleration in labour demand. While wholesale and retail trade led the way higher with 21k jobs added, this represented only a partial recovery from prior losses. Gains were also recorded in finance, insurance, real estate, rental and leasing (+18k), professional, scientific and technical services (+17k), and construction (+16k). However, employment in these industries was little changed on a year-over-year basis.

The participation rate rose slightly to 65.1% in July but remained below its 2025 average of 65.3%. The unemployment rate dipped to 6.4%, its lowest level in two years. The employment rate edged up to 60.9%, still below its 2024 average of 61.3%, before the latest trade-related volatility, suggesting that July’s gains represent progress rather than a complete recovery.

The summer hiring season has improved from last year but remains challenging. The youth unemployment rate edged down to 12.6% in July from a recent peak of 14.3% in April. Still, the youth unemployment rate remains well above the 10.8% pre-pandemic average. Conditions have recovered most clearly for college-age job seekers, with the unemployment rate among 20- to 24-year-olds down 2.4 ppts y/y to 8.8%, closer to pre-pandemic norms. Younger cohorts face a much tougher market: unemployment among 15- to 19-year-olds rose to 20.5% in July, well above its 14.6% pre-pandemic average, while participation in this group has fallen sharply (graph 2).

Wage growth cooled to 2.8% y/y in June, the slowest pace since February 2022 and broadly in line with headline inflation in June (graph 3), helping to contain underlying inflation risks.

July’s job gains ease near-term downside growth concerns, but labour-market conditions remain soft beneath the surface. The Bank of Canada’s July MPR already pointed to an economy showing signs of improvement after a weak start to the year, while emphasizing elevated uncertainty and a gradual easing in inflation. The July jobs print fits that narrative, while soft wage growth, weakness in youth employment, and uneven sectoral gains argue against interpreting the report as evidence of overheating. US trade policy remains the key downside risk, with additional tariffs potentially knocking the recovery off course. We expect the Bank of Canada to remain on hold through year-end.