Data on Friday showed that Canada's unemployment rate rose slightly to 6.6 percent in August, reaching a high last seen more than seven years ago, excluding the pandemic years of 2020 and 2021.
According to Statistics Canada, the economy added 22,100 net new jobs in August, all of which were part-time jobs.
Analysts surveyed by Reuters had forecast an unemployment rate of 6.5 percent and a net job increase of 25,000 for August.
The Canadian dollar strengthened and traded against the US dollar at 1.3467 Canadian dollars or 74.26 US cents, corresponding to a daily increase of 0.3 percent.
Canada's economy had lost momentum under the pressure of high interest rates, and growth at the beginning of the year was largely due to population growth.
But as GDP growth lagged behind population growth, unemployment rose rapidly, fueling fears of a recession.
Canada's unemployment rate has risen 1.6 percentage points since January 2023, which some economists called alarming and urged deeper interest rate cuts to support growth.
Year-on-year, the increase in unemployment was sharpest among 15- to 24-year-olds, and this summer's unemployment rate among them was the highest in eight years.
The Bank of Canada cut its key interest rate by 25 basis points to 4.25 percent this week. It is the third such measure in a row. Governor Tiff Macklem said that even deeper rate cuts were possible if the economy needed support.
Slow employment growth is one of the reasons that could dampen robust GDP growth forecasts for the third quarter, he said in his remarks.
Financial markets have cut their expectations for an October rate cut to 93 percent from 98 percent before Friday's announcement. Traders are already factoring in two 25 basis point rate cuts by December. 0#BOCWATCH
The employment rate, i.e. the number of people with a job in relation to the total working population aged 15 and over, has been steadily declining, reaching 60.8 percent in August, according to Statscan. It has fallen in 10 of the last 11 months.
Average hourly wage growth for permanent employees slowed to an annual rate of 4.9 percent in August from 5.2 percent in July, the statistics agency said. Wage growth figures, which partly account for high inflation, are closely monitored by the BoC.
(Reporting by Promit Mukherjee. Editing by Dale Smith, David Ljunggren, Philippa Fletcher)