Trade tensions are showing up in the economic data, with Statistics Canada reporting Friday the country’s unemployment rate ticked up to 6.9% in April, from 6.7% the month before.

Canada added around 7,400 jobs, slightly better than economists had expected, but much of that was due to hiring for the April 28 election, which was partly responsible for an increase of 37,000 public sector positions. Offsetting that was the loss of 31,000 jobs in manufacturing and 27,000 in wholesale and retail trade, among the sectors most vulnerable to disruptions caused by tariffs.

Although the economy added jobs in April, the three-month average is a decline of about 8,000 positions.

‘Uncertainty shock’

“Overall, we are seeing a job market that was weak heading into the trade war, now looking like it could soon buckle,” Ali Jaffery, senior economist at CIBC Capital Markets, wrote in a note to clients. “Today’s report supports the case for a Bank of Canada cut in June.”

The unemployment rate in April matched its peak in November, wrote Jaffery, but the difference between now and the second half of 2024 is that population growth then was still fairly elevated, averaging about 80,000 to 100,000 per month. Over the past three months, the average is closer to 50,000, “so the weakness in the job market is clearly mostly a function of the uncertainty shock unfolding in the economy, with businesses pausing hiring and investment.”

The Bank of Canada next meets on June 4 to set interest rates. The Bank's policy rate stands at 2.75%, following a series of cuts since mid-2024. Market forecasts suggest the rate could decrease to between 2.25% and 2.50% by the end of 2025.

Diversifying exports

The jobs report on Friday followed the release of the trade data on Monday that also reflected the impact of rising trade tensions.

Merchandise exports to the U.S. dropped 6.6% in March compared with the month before, the biggest decline in 5 years, just as they increased dramatically to other countries, the federal statistics agency said. For example, exports to the UK, particularly of unwrought gold, almost doubled, rising 94%, and were up 75% to the Netherlands, largely on crude oil. Overall, Canada’s merchandise trade deficit narrowed to $506 million in March, from $1.4 billion the month before.

March was the first month of tariffs — the original “fentanyl tariffs” with USMCA exemptions as well as steel and aluminum, Shelly Kaushik wrote in a note to clients, adding that next month’s report will be the first under the auto tariffs. “It was inevitable that the normally volatile trade figures will be even more turbulent going forward,” she said. “We expect trade will drag on growth starting in Q2 through the rest of the year.”