Unemployment falls to 6.4%, its lowest level in two years, as Canadian businesses navigate continued US tariff uncertainty

Canada added 75,000 jobs in July as Statistics Canada reported a notable improvement in the labour market on Friday, August 7, 2026, offering Prime Minister Mark Carney’s government an encouraging sign of resilience as Canadian businesses continue to adjust to US trade restrictions.

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The increase, equivalent to 0.4 per cent, pushed Canada’s unemployment rate down from 6.5 per cent in June to 6.4 per cent, its lowest level in two years.

The result was considerably stronger than economists had anticipated.

TD Economics had expected employment to rise by about 20,000 positions, meaning the July increase was more than three times the forecast.

The gains were also relatively broad. Statistics Canada recorded increases in both full-time and part-time employment, with full-time work rising by 38,600 and part-time employment increasing by 36,600.

Wholesale and retail trade led the gains with 21,000 additional jobs, while finance, insurance, real estate, rental and leasing added 18,000.

Professional, scientific and technical services gained 17,000 positions, while construction employment increased by 16,000.

The picture was not uniformly positive. Public administration employment fell by 15,000, while agriculture recorded a decline of about 9,600 positions.

Even so, the broader trend suggests that employers have continued to absorb workers despite an economy that has spent much of the year dealing with trade uncertainty.

Average hourly wages rose 2.8 per cent year on year in July to $37.17, although wage growth slowed from 3.3 per cent in June.

The labour force itself expanded by 60,500 people, while the participation rate edged up 0.1 percentage points to 65.1 per cent.

TD Economics described the figures as evidence that the labour market is recovering, while warning that the Canadian economy still has spare capacity.

“The labour market is showing clear signs of recovery,” TD Economics said, adding that the unemployment rate could gradually decline through the remainder of the year.

The strong employment reading comes after a difficult period for the Canadian economy.

The Bank of Canada said in July that economic growth had been weak, with gross domestic product remaining broadly unchanged over the year to the first quarter as the country adjusted to tariffs, trade uncertainty and slower population growth.

At its July 15 meeting, the Bank of Canada kept its benchmark interest rate at 2.25 per cent and said there were signs that economic growth had resumed in the second quarter.

It estimated second-quarter growth at about 2.5 per cent, while noting that labour market conditions had remained soft.

The July jobs figures therefore provide a more encouraging snapshot of an economy that policymakers have been watching closely.

They also arrive as Ottawa faces another difficult stage in its trade relationship with Washington.

US President Donald Trump’s administration has threatened to impose a new 50 per cent tariff on a significant number of Canadian goods from August 19.

The proposed measures have added another layer of uncertainty for businesses that already have had to adjust to sector-specific US tariffs.

Prime Minister Mark Carney has been seeking to prevent further escalation while pursuing discussions with the United States over the future of the Canada-United States-Mexico Agreement, known as CUSMA.

In a July 20 statement, Carney said Canada was prepared to intensify negotiations while protecting domestic businesses and workers.

“Canada will work relentlessly and take any measures necessary to build our strength at home,” Carney said.

The trade dispute is particularly important because the United States remains Canada’s dominant trading partner.

While most North American trade continues to benefit from tariff exemptions, the Bank of Canada said some industries have already been heavily affected by sector-specific measures.

The central bank’s July projections assumed that trade within North America would remain mostly free of tariffs, with an estimated average US tariff rate of 5 per cent on Canadian goods under the measures in place or officially agreed by July 10.

That backdrop means the July employment surge cannot be viewed as evidence that all economic pressures have disappeared.

TD Economics warned that the prospect of further tariffs remained a downside risk, even as it expected unemployment to continue edging lower.

The firm also suggested that the Bank of Canada could keep its policy rate unchanged for the rest of the year.

For Carney’s government, however, the latest figures offer a welcome moment of economic reassurance. The jobs increase shows that Canadian employers have continued hiring even as trade relations with Washington remain unsettled.

The challenge now is whether that resilience can be sustained if tariff pressures intensify later in August.

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For the moment, the July figures provide a powerful indication that Canada’s labour market is adapting faster than many forecasters expected, giving policymakers and businesses some breathing space as they navigate an uncertain trading environment.