The Divergence in Canadian Labour Market Data and Its Implications for Equity and Commodity Sectors

The Canadian labour market in 2025 is a study in contrasts. While trade-exposed sectors like manufacturing and construction grapple with job losses and wage stagnation due to the U.S. trade war, AI-adopting industries such as information and finance are thriving. This divergence has profound implications for equity and commodity investors, demanding a nuanced approach to sector rotation and risk-adjusted positioning.

Labour Market Divergence: A Tale of Two Sectors

The trade war has disproportionately impacted sectors reliant on U.S. exports. Manufacturing and transportation employment fell by 1% to 2% in Q2 2025, with Windsor’s unemployment rate spiking to 11.2%—the highest among Canadian census metropolitan areas [4]. Meanwhile, AI-driven sectors like information and recreation added jobs, with 35.6% of businesses in these industries now integrating AI tools to boost efficiency [2]. This duality reflects a broader shift: automation is reshaping the economy, but trade tensions are creating headwinds for traditional industries.

Wage growth also diverged. Average weekly earnings rose 3.7% year-over-year to $1,302 in June 2025, but this masked softening in trade-exposed sectors, where wage growth fell to 2.7% in Q2 [2]. Youth unemployment, meanwhile, surged to 17.4%, underscoring the fragility of entry-level jobs in a slowing economy [4].

Equity Sector Rotation: From Vulnerability to Resilience

Investors are recalibrating portfolios to reflect these divergences. Trade-exposed sectors, which account for 2 million jobs in 2024, face heightened risk from U.S. tariffs and reduced cross-border demand [5]. For example, Alberta’s unemployment rate hit 7.8% in July 2025, while Saskatchewan’s potash and oil-driven economy saw employment growth [5]. This regional disparity has led to a shift in equity allocations:

• Defensive Plays: Canadian banks and infrastructure firms are gaining traction as buffers against trade volatility. These sectors benefit from stable domestic demand and regulatory tailwinds [3].
• AI-Driven Growth: Thematic ETFs like the iShares Global AI & Robotics ETF (XAI.TO) are attracting capital, as investors bet on automation’s potential to offset productivity losses in vulnerable industries [2].
• Hedging Vulnerable Sectors: In agriculture and food services, where AI adoption lags at 0.7% and 0.9%, investors are prioritizing sub-sectors with AI integration, such as smart farming technologies [2].

The S&P/TSX 60, heavily weighted toward resource equities, faces valuation risks as earnings erode from trade-related pressures. Its trailing P/E ratio of 19.36 in early 2025 remains sensitive to these headwinds [5].

Commodity Sector Positioning: Gold, Copper, and the Trade War

Commodity investors are navigating a bifurcated landscape. The trade war has weakened demand for oil and gas, with the mining sector accounting for 9% of U.S.-exposed jobs [5]. However, gold and copper are emerging as hedges against global uncertainty. Gold miners are being positioned as safe havens amid rising geopolitical risks, while copper’s long-term outlook remains optimistic due to anticipated supply shortages [6].

Alberta and British Columbia’s divergent performances highlight the importance of regional diversification. Saskatchewan’s resilience, driven by potash demand, contrasts with Alberta’s struggles, underscoring the need for granular exposure to resource-rich provinces [5].

Risk-Adjusted Strategies: Balancing Exposure and Resilience

A risk-adjusted approach requires balancing growth and defensive positioning:
1. Short-Duration Fixed Income: Investors are favoring high-yield corporate bonds and private credit to manage inflationary pressures and liquidity risks [3].
2. Geographic Diversification: Reducing exposure to U.S.-centric sectors while increasing allocations to domestically focused companies [6].
3. Scenario-Based Asset Allocation: The Bank of Canada’s adaptive strategies emphasize flexibility, with investors adjusting portfolios based on trade policy shifts and automation trends [3].

Conclusion

The Canadian labour market’s divergence in 2025 is a microcosm of global economic forces: automation, trade wars, and demographic shifts. For investors, the path forward lies in sector rotation toward AI-driven growth and defensive commodities, while hedging against trade-related vulnerabilities. As the economy navigates these crosscurrents, a disciplined, data-driven approach will be critical to capturing opportunities in a fragmented market.

Source:
[1] The Daily — Payroll employment, earnings and hours, and ... [https://www150.statcan.gc.ca/n1/daily-quotidien/250828/dq250828b-eng.htm]
[2] AI's Dual Impact on Canada's Labor Market and Its Implications for Equity Investing [https://www.ainvest.com/news/ai-s-dual-impact-on-canada-s-labor-market-and-its-implications-for-equity-investing-2507101063d3498ab4474a95/]
[3] Benchmarks for Assessing Labour Market Health: 2025 Update [https://www.bankofcanada.ca/2025/06/staff-analytical-note-2025-17/]
[4] The Daily — Labour Force Survey, June 2025 [https://www150.statcan.gc.ca/n1/daily-quotidien/250711/dq250711a-eng.htm]
[5] Assessing EWC's Exposure to a Weakening Canadian ... [https://www.ainvest.com/news/assessing-ewc-exposure-weakening-canadian-jobs-market-strategic-hedging-resource-dependent-economy-2508/]
[6] Tariff Risks Reshape Manager Positioning [https://russellinvestments.com/content/ri/ca/en/insights/russell-research/2025/05/active-management-insights-may-2025.html]