Analysts had expected growth of about 0.2 per cent on a month-over-month basis.
The statistics agency said the August contraction was driven by a 0.5 per cent dip in goods production, mainly due to decreases in mining, oil and gas extraction and manufacturing.
Overall, StatsCan noted shrinking output in 10 out of 18 industrial sectors.
"This was no fluke," said Douglas Porter, deputy chief economist at BMO Nesbitt Burns.
"While some temporary factors weighed on activity in August, the main message here is that the economy is struggling to churn out any growth whatsoever."
He expects a "modest rebound" for September, but sluggish growth for the rest of the year.
Statistics Canada said there were declines in utilities and construction, while the output of service industries was unchanged.
Increases in wholesale trade, transportation services and the public sector were offset by declines in the output of real estate agents and brokers, retail trade and the finance and insurance sector.
Mining and oil and gas extraction declined 0.7 per cent. Mining alone slipped 2.8 per cent.
Oil and gas decreased 0.4 per cent as lower crude petroleum production offset an increase in natural gas extraction. Maintenance at some oilfields reduced output in August.
Manufacturing decreased 0.6 per cent in August, after rising 0.9 per cent in July. Durable goods production fell 1.3 per cent in August, mainly due to declines in fabricated metal products, furniture and related products, primary metal products as well as electrical equipment, appliance and component manufacturing. Meanwhile, the output of machinery manufacturers increased.
Non-durable goods manufacturing grew 0.3 per cent with increases in paper, petroleum and coal products and in beverage and tobacco products.
Wholesale trade rose 1.0 per cent in August with increases in food products, machinery, equipment and supplies, building materials, petroleum products and farm products.
Retail trade fell 0.5 per cent in August, following a 0.4 per cent increase in July. There were declines in sales of motor vehicles and parts, health and personal care products, food and beverages, building materials and garden equipment and supplies. Sales rose at general merchandise stores and at sporting goods, hobby, book and music stores.
A softening housing market also took a toll on the economy.
Construction edged down 0.1 per cent in August with declines in residential and non-residential building construction outweighing an increase in engineering construction.
The output of real estate agents and brokers fell 6.6 per cent in August as the home resale market declined.
Utilities were down 0.8 per cent in August, after four consecutive monthly increases. A notable decrease in electricity production in August was partly a result of a return to more seasonal weather.
The public sector edged up 0.1 per cent as increases in health care and education services were partly offset by a decline in public administration.
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