Viewpoint: US (and Canada) employment data — soft jobs reports likely give a green light to September rate cuts

Despite notifications that technical difficulties at the U.S. Bureau of Labor Statistics would delay the release of the U.S. employment data, the August report¹ was issued on time* and provided a surprise to the downside of market expectations that looks like it will effectively give a green light for the U.S. Federal Reserve (Fed) policy-setting Federal Open Market Committee’s (FOMC) to cut rates on September 17 and make further moves thereafter (market pricing 70bps of easing by year-end now). The U.S. dollar is weakening against its peers aside from the Canadian dollar (more on that in a second), Treasuries are rallying, and the curve is bull-steepening, while equities are getting that rate-induced bid (growth-biased NASDAQ futures outperforming).

Note that the Canadian Labour Force Survey² was also released this morning and provided a bigger downside disappointment to the consensus. While this dataset can be akin to a random number generator month-to-month at the best of times, the notable weakening trend, combined with other soft data (including Q2 GDP³) sets up for the Bank of Canada to take monetary policy over to the “easy” side of the dial (markets are pricing an additional 40bps by year-end), putting downward pressure on government bond yields and weighing on the Canadian dollar (roughly unchanged versus the USD, down versus other G10 peers).

Turning to the specifics of the data, U.S. nonfarm payrolls⁴ increased by a net of 22,000 in August (consensus was +75,000), with the prior two months seeing a 12,000 worth of cumulative downward revisions — July’s change was revised up by 6,000 to now stand at +79,000, but June was revised down from +14,000 to -13,000. For what it is worth, the U.S. household⁵ survey showed a gain of 288,000 for the month, but this just reversed the like-sized decline seen in July — the average on this highly volatile survey is +40,000 over the last three months, which is generally consistent with the +29,000 for the establishment survey, which points to softening hiring.

* September 5, 2025

Change in employment based on survey, U.S.

Source: Guardian Capital, based on data from the U.S. Bureau of Labor Statistics to August 2025

The breadth of U.S. job gains was soft, too. The one-month payroll diffusion index (gauge of the share of firms adding to headcount) remained below 50% for the fifth straight month. Industry-wise just five of 13 private sectors adding to headcounts — education & health care (+46,000), leisure & hospitality (+28,000), and retail (+11,0000) were the leaders; manufacturing (-12,000), wholesale trade (-12,000) and professional & business services (-17,000) the job losers — while government employment contracted by 16,000 as well (private payrolls were +38,000 in the month).

Change in private sector nonfarm payrolls, U.S.

(month-over-month change, thousands)

Source: Guardian Capital, based on data from the U.S. Bureau of Labor Statistics to August 2025

There was a strong increase in the number of Americans looking for work, which took the overall labour force participation rate up a tick to 62.3%, while the rate for the prime 25 to 54 age cohort jumped from 83.4% to 83.7% in August, its highest level since last September — the increased supply of available workers combined with the modest job gains for the month resulted in the unemployment rate rising to 4.3%, its highest level since October 2021 — the broader “underemployment” rate also hit its almost four-year high at 8.1% versus 7.9% in July.

Unemployment rates, U.S.

(percent)

Shaded regions represent periods of U.S. recession; source: Guardian Capital, based on data from the U.S. Bureau of Labor Statistics to August 2025

Rising job market slack was evident in the wage data, which showed average hourly earnings up 0.3% month-over-month, which meant the annualized three-month trend rate ticked down to 3.4% from 3.9% in July, while the 12-month wage inflation rate moderated to a 13-month low 3.7% from 3.9% last month (consensus here was +3.8%). Signs of easing wage pressures (average hours worked were unchanged), while less than ideal in terms of real consumer spending, do provide some help for the Fed’s price stability mandate.

Average hourly wage rate U.S.

(percent)

The bottom line here is that, while there are limited signs of broadening job cuts in the face of numerous headwinds as of yet (as per initial claims⁶ and JOLTS⁷ data, for example), the indications of softening hiring trends in today’s data will do nothing to dissuade FOMC voters from their newfound concerns about the growing downside risks to the job market.

Accordingly, the now more proactive U.S. central bank stands likely to resume its process of moving from a restrictive policy stance toward something at least closer to neutral (note that the last set of “dots” shows that FOMC members view 3.0% to be “neutral”/longer-run fed funds rate, while it currently is still north of 4%). It would likely take a MASSIVE upside surprise in the inflation data, due out next week, to prevent a 25bps cut by the Fed on September 17.

Turning quickly to the Canadian data, employment unexpectedly declined for the second straight month as the economy shed 65,500 jobs in August (consensus +5,000) after July’s 40,800 decline — the three-month trend now stands at an average monthly decline of 7,700, which is clearly not positive.

Total employment, Canada

(month-over-month change in thousands)

Shaded regions represent periods of U.S. recession; source: Guardian Capital, based on data from Statistics Canada to August 2025

The bulk of the job loss in Canada was among part-time employees (-59,700) to retrace most of the cumulative gains of the last two months, but full-time gigs were still down for the second straight month (-6,000 in August, -51,000 in July). As well, a decline in the ranks of the self-employed (-42,600) was the biggest contributor to overall decreases, but private paid employment (-7,500 after July’s 39,000 drop) and jobs in the public sector (-15,500) also showed weakness. The impact of trade policies was evident on the sector breakdown, with notable job losses in manufacturing (-19,200), transportation & warehousing (-22,700) and natural resources (-5,600) compounding broad weakness elsewhere — construction (+17,100) and accommodation & food services (+9,200) were the only areas to see somewhat notable gains in the month.

Change in total payrolls, Canada

(month-over-month change, thousands)

Source: Guardian Capital, based on data from Statistics Canada to August 2025

The drop in Canadian employment more than outpaced the reduction in the workforce (participation rate ticked down from 65.2% to 65.1% in August) and pushed the unemployment rate up to a four-year high of 7.1%.

Unemployment rate, Canada

(percent)

Shaded regions represent periods of U.S. recession; source: Guardian Capital based on data from Statistics Canada to August 2025

While it was the case that the Bank of Canada’s favoured gauge of wage inflation unexpectedly firmed (wages of permanent employees rose to a 6-month high of +3.6% year-over-year versus 3.5% in July and +3.4% consensus expectations; this could be a function of composition reflecting job loss at the lower end of the wage spectrum), the growing signs of weakness in hiring and growing job market slack, combined with other soft data in the Great White North, will likely be sufficient for this central bank to resume its policy easing cycle, with a 25bps cut on the next fixed action date on September 17 looking like a high probability event.

David Onyett-Jeffries
David Onyett-Jeffries is Vice President, Economics & Multi Asset Solutions, at Guardian Capital LP (GCLP). He provides macroeconomic guidance to GCLP and its affiliates. Additionally, he is a portfolio manager of GCLP’s multi-asset portfolios and funds and works closely with GCLP’s Directed Outcomes team.

¹ U.S. Bureau of Labor, Economic News Release, Employment Situation Summary, The Employment Situation – August 2025, September 5, 2025, https://www.bls.gov/news.release/empsit.nr0.htm
² Statistics Canada, The Daily, Labour Force Survey, August 2025, September 5, 2025, https://www150.statcan.gc.ca/n1/daily-quotidien/250905/dq250905a-eng.htm
³ Statistics Canada, The Daily, Gross domestic product, income and expenditure, second quarter 2025, August 29, 2025, https://www150.statcan.gc.ca/n1/daily-quotidien/250829/dq250829a-eng.htm
⁴ U.S. Bureau of Labor, Economic News Release, Employment Situation Summary Table B. Establishment data, seasonally adjusted, September 5, 2025, https://www.bls.gov/news.release/empsit.b.htm
⁵ U.S. Bureau of Labor, Economic News Release, Employment Situation Summary Table A. Household data, seasonally adjusted, September 5, 2025, https://www.bls.gov/news.release/empsit.a.htm
⁶ U.S. Department of Labor, News Release, Unemployment insurance weekly claims, Seasonally adjusted data, September 4, 2025, https://www.dol.gov/ui/data.pdf
⁷ U.S. Bureau of Labor, Economic News Release, Job Openings and Labor Turnover Summary, Job Openings and Labor Turnover – July 2025, September 3, 2025, https://www.bls.gov/news.release/jolts.nr0.htm

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Published: September 8, 2025