Canada’s August employment report came in rather flat, but economists are fretting that the worst may be yet to come.

The jobs report saw Canada’s unemployment rate rise to 7.2%, with 7,700 job losses in August.

Although losses are down from 14,000 and 13,000 in the previous two months, and full-time employment actually rose during the month, that isn’t enough to cheer economists.

“While the details in today’s Canadian employment report were somewhat encouraging, the broader picture continues to show a steady deterioration in labour market conditions,” says BMO Nesbitt Burns.

“The Canadian economy may not be officially in recession, but you wouldn’t know it from the labour market,” moans CIBC World Markets. BMO notes that today’s result heralds the first three-month string of declines since 1992, at the tail end of the prolonged recession of the early 1990s. “Three consecutive monthly job losses is unprecedented during a non-recessionary period, and combined with a rising unemployment rate,” agrees CIBC.

“Job losses were concentrated in the service sector, as they have tended to be in recent months, suggesting a broader base of labour market weakness than in the U.S.,” notes RBC DS Capital Markets Research. “Poorer results may still be to come, however — after showing some resiliency over the past year, Canada’s economy appears to be catching up to U.S. stagnation, which the labour market is likely to reflect in its lagged way. The Bank of Canada has ample reason to cut rates further and greater room to do so than the Fed — expect another 25 basis points cut on October 23.”

BMO agrees, “The Bank of Canada will see another jobs report before the October 23 decision date on interest rates. There’s nothing here to convince officials to change the easing course now.”

CIBC is on board too, noting, “[the data] suggests that a more aggressive Bank of Canada easing stance will be needed in the coming months.” It suggests the risks of an economic contraction for the third quarter are growing every day.

TD Bank notes, “The news on Canada’s job front threatens to get worse in the months to come, as layoff announcements continue to mount, and the U.S. economy — the prime destination of Canada’s manufactured exports — remains in a deep funk. Although a recession in the economy is likely to be averted in 2001, a further gradual deterioration in labour market conditions can reasonably be expected through the remainder of the year, pushing Canada’s jobless rate above 7.5% by December.”

TD adds that the growing slack in Canada’s labour markets will support further cuts to interest rates by Canada’s central bank over the near term. It expects to see a further 75 bps cut to rates by January 2002.