The urgency of a Bank of Canada rate cut just increased as the Canadian economy shed 40,800 jobs in July, far more than expected by markets and forecasters in an Econoday survey that had centered on a 7,000 increase. The unemployment rate remained stable at 6.9 percent, while the participation rate edged down to 65.2 percent.

There were multiple signs of weakness in the report, starting with the fact that job losses were concentrated in full-time employment, which dropped 51,000 in July, while part-time was up 10,300. While the employment decline comes after a surprisingly strong 83,100 gain in June, the latter was led by part-time employment, which was up 69,500. Over the past three months, the economy has added 51,100 jobs, led by a 31,000 increase in part-time employment, while full-time has created 20,200 positions.

Another sign of weakness comes from the fact that the private sector led the deterioration with employment shrinking 39,000 while the number of public sector employees was up 4,000. Self-employment decreased 5,800.

Hours worked contracted 0.2 percent on the month. Yet, those with a job saw wage growth pick up to 3.3 percent year-over-year from 3.2 percent in June (unadjusted).

In its July 30 statement, the central bank pointed out the weakening labor market conditions in sectors affected by trade. It continues to monitor not only the extent to which higher U.S. tariffs reduce demand for Canadian exports, but how much this spills over into employment.

In July, the employment rate was down 0.2 percentage points to 60.7 percent. The unemployment rate held steady as the number of people searching for work or on temporary layoff was little changed. Unemployed people continued to experience difficulties finding work in July, with the long-term unemployment rate at 23.8 percent, the highest since February 1998, excluding pandemic years. Two-thirds of job seekers in June were still unemployed in July.

Both goods-producing and services sectors shed jobs. Goods industries lost 29,000 positions in July, led by a 21,600 decline in construction and a 10,800 drop in agriculture, while manufacturing was up 5,300.

Services employment was down 11,900, led by a 29,200 plunge in information, culture and recreation, a 19,200 decline in business, building and other support services, and a 16,500 decrease in health care and social assistance. By contrast, transportation and warehousing increased 26,100 and educational services added 22,400 positions.

Today's report comes on the back of a disappointing jobs report in the U.S. as well, that included sharp downward revisions to the previous months.

The Labour Force Survey is a key economic indicator giving an overall picture of employment and unemployment. Employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The unemployment rate measures the number of unemployed as a percentage of the labor force.

As in the U.S., this report is used as an indicator of the health of the domestic economy. Employment trends and break-downs by industry groups highlight the strength in job creation and the implications for future sectoral activity. The unemployment rate is used as an indicator of tightness in labor markets and can foreshadow a future increase in wages. Labor force data provide investors with the earliest signs of industry performance. While other data are produced with a month or two delay, these data are available only a week to 10 days after the end of the latest month. Reactions can be dramatic - especially when the result is unanticipated.

The information in the report is invaluable for investors. By looking at employment trends in the various sectors, investors can take more strategic control of their portfolio. If employment in certain industries is growing, there could be investment opportunities in the firms within that industry.

The bond market will rally (fall) when the employment situation shows weakness (strength). The equity market often rallies with the bond market on weak data because low interest rates are good for stocks. But sometimes the two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about the potential for inflationary pressures.

The unemployment rate rises during cyclical downturns and falls during periods of rapid economic growth. A rising unemployment rate is associated with a weak or contracting economy and declining interest rates. Conversely, a decreasing unemployment rate is associated with an expanding economy and potentially rising interest rates. The fear is that wages will accelerate if the unemployment rate becomes too low and workers are hard to find.