Canada lost a surprising 31,200 jobs in July due to a steep decline in full-time work, a worrying setback for a country grappling with the downturn in the energy sector.

The unexpected job losses sent the unemployment rate up to 6.9 per cent from 6.8 per cent in June, Statistics Canada said in its monthly labour report released on Friday.

"Another hit to an already struggling Canadian economy," said Arlene Kish, senior economist with IHS Global Insight. "Canadians are wondering where the jobs are. Discouraged workers are leaving the labour force."

Story continues below advertisement

Interactive game: Try your hand at forecasting Canada's jobs report

Employers eliminated 71,400 full-time positions, the second consecutive month of full-time declines, but 40,200 part-time jobs were created. Meanwhile, the participation rate fell to its lowest level since late 1999, as more people either stopped actively searching for work or stopped working altogether.

Over the first seven months of the year, employers created 12,400 positions, representing the weakest job creation since the Great Recession.

"Job growth has slowed to near post-crisis lows," David Watt, chief economist with HSBC Bank Canada, said in a note. "Job growth remains weak."

Although the number of hours worked rose slightly, growth in wages slowed, suggesting demand for labour has weakened.

"The annual trend in employment and hours worked is commensurate with an economy that continues to face headwinds," said Nick Exarhos, an economist with CIBC World Markets.

Employment among younger workers fell by 28,000 positions and the services-producing sector took a hit.

Story continues below advertisement

The natural resources sector has lost the most positions over the past 12 months. Weak oil prices have pummelled the energy sector, with Alberta bearing the brunt of the losses.

The resource-dependent province was already suffering from weak oil prices before wildfires destroyed parts of Fort McMurray. Although Alberta shed only 1,400 positions last month, over the year, full-time work declined by 5.4 per cent. The province's jobless rate shot up to 8.6 per cent, the highest level in more than two decades.

Ontario, the country's most populous province, saw 36,100 positions vanish in July with losses in educational services, public administration, construction, finance, insurance and real estate.

Across the country, the public sector shed 42,000 positions, with about half the losses due to a drop in public administration employment at the municipal and regional level.

Some economists speculated that the decline was due to the 2016 census, which was conducted earlier this year and boosted hiring.

But Statscan said that was not the case.

Story continues below advertisement

"The occupations related to census in federal public admin did not drive the decline," said Andrew Fields, labour analyst with Statscan.

On the positive side, the private sector added 13,600 positions and British Columbia continued to create jobs.

Analysts polled by Bloomberg had expected a gain of 10,000 jobs in July.

In the U.S., employers exceeded expectations and added 255,000 new jobs, a sharp contrast to Canada's labour market woes. The jobs report along with weak trade data sent the loonie plummeting 0.83 of a cent (U.S.) to close at 75.96 cents.