Canada’s latest employment report has significantly increased the likelihood of an interest rate cut by the Bank of Canada on September 17.

Statistics Canada’s Labour Force Survey (LFS) for August shows a loss of nearly 66,000 jobs for the month. That follows a drop of 41,000 positions in July. The August unemployment rate stands at 7.1%, up from 6.9% a month earlier.

Looking back to June, the Survey of Employment, Hours and Payroll (SEPH) – which is considered more reliable than the Labour Force Survey (LFS) – shows more than 32,000 jobs were lost; a significant reversal from initial reports of 83,000 jobs added for the month.

Most of the August loses came in part-time positions but had an inordinate impact on workers aged 25 to 54, which is an important demographic in the first-time homebuyer market. On-going trade trouble with the United States is getting the blame.

Employment plays an important role in the Bank of Canada’s interest rate decisions. Market watchers now say there is a better than 80% chance the Bank will cut its policy rate later this month. However, inflation is still the key factor.

“All told, this weak report fully reinforces any bias for the BoC to ease somewhat further here, but inflation hasn’t quite given them the all-clear,” wrote bank economist Douglas Porter in a newsletter.

The next inflation report is due September 16, one day before the Bank of Canada’s next interest rate setting.

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The Bank of Canada’s next interest rate announcement is set for September 17.  Between now and then there will be plenty of economic data to digest.

The latest significant report was Statistics Canada’s July employment reading, which surprised most analysts with a drop of nearly 41,000 jobs.  Most of those positions were full-time.  The unemployment rate was unchanged at 6.9%.

Expectations had been for an increase of 13,500 jobs.

Well known Canadian economist Douglas Porter referred to the report as “unambiguously weak”, especially in light of the June employment report that showed 83,000 new jobs were created.

Some analysts feel this increases the likelihood of a Bank of Canada Policy Rate cut in September.  They put the chances at 40%.  However, Porter and many other economists do not expect July’s sudden jobs decline to change the central bank’s current stance on interest rates.

“[The Bank] will still need to see inflation slow notably over the next two prints for a September cut to be a high likelihood. We expect that the job market slack will put downward pressure on inflation, eventually, supporting the case for a return to modest rate cuts. And it appears that the trade uncertainty will be with us for some time yet,” Porter wrote in a client note.

The central bank has held its trend-setting Policy Rate at 2.75% since March.

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A key segment of Canada’s first-time homebuyer market appears to be delaying its purchasing plans.  A new survey by real estate giant Royal LePage suggests renters are holding back, waiting for further price declines.

The survey finds that 40% of renters, who considered buying before signing or renewing their current lease, are waiting for property prices to drop.  Another 29% are waiting for further interest rate reductions and 28% say they are continuing to rent while they save for a down payment.

The market has become more buyer friendly (prices are off their peaks, interest rates are down and supply is up) but affordability is a primary concern for renters.  Across Canada, 15% of tenants say they spend more than half of their net income on rent.  More than half of renters (53%) believe their income will not allow them to buy in their preferred neighbourhood.

Beyond the financial concerns, nearly a third of renters (31%) say they have no intention of buying.  Of that group, 40% say renting is more affordable, and another 40% simply do not want the responsibilities associated with homeownership.

At the same time rental costs, while still high, have been moderating.  One national analysis shows, average rent for a one-bedroom unit declined 3.6% year over year to $1,857 in May 2025.  Two-bedroom rents fell 4.6% to $2,225.

The survey suggests the desire for ownership remains strong with 54% of renters saying they intend to buy a home “in the future”.  Sixteen percent expect to make the move within the next two years, 21% are looking to buy in two to five years.

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Canada’s gross domestic product posted better than expected growth in the first three months of this year.  GDP, which is the total value of all goods and services produced by the economy, increased by an annualized rate of 2.2% in the first quarter, up from 1.7% for the same period a year ago.  Analysts had been forecasting a 1.7% increase.

Q1 GDP was up 0.5% compared to Q4 of 2024.

The figures from Statistics Canada suggest the economy is holding its own, but many experts are warning that the numbers may be misleading.  They say businesses and industries likely boosted production in an effort to “front run” wide-ranging tariffs threatened by the United States.  The U.S. president announced sweeping, global tariffs on April 2, which he dubbed “Liberation Day”. 

Now that the penalties are in place, production is expected to decline and higher prices caused by the tariffs will likely supress consumption.  GDP growth for the rest of the year is expected to slow and could even turn negative, raising the possibility of a technical recession.

For the time being, though, first quarter GDP growth, an increase in unemployment and a bump in inflation give the Bank of Canada all the reasons it needs to hold off on any further interest rate moves.  Canadians hoping to see a cut may have to wait until later in the year.  Many market watchers are forecasting at least two more rate cuts in 2025. 

The next interest rate setting is scheduled for June 4.  

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The federal election is done and we now know what the government will look like for the foreseeable future.

Among the key promises made during the election campaign were pledges to fix the country’s housing problems. Housing was the number-three domestic issue in the campaign according to a survey conducted for Royal LePage. (The economy/cost of living, #1 at 86%; health care, #2 at 75%; housing, #3 at 62%.)  In some of the country’s priciest markets, like Vancouver, housing actually climbed into the number-two spot ahead of health care.

All of the major parties outlined plans to get more homes built and make them more affordable. Both the Conservatives and Liberals have made bold commitments to double home construction to 500,000 units a year, but current economic conditions present an obvious hurdle to those plans.

“Housing starts, if anything, in large parts of the country, are actually declining because of economic conditions. So, this idea that we could double housing starts in a relatively short period of time is not realistic,” said the Smart Prosperity Institute’s Mike Moffatt, as quoted in the Globe and Mail.

On the other hand, well-known market watcher Murtaza Haider, of Toronto Metropolitan University, reportedly sees the focus on increasing supply as an improvement over previous policies such as the ban on foreign buyers.

Of course, all of the promises stand in the shadow of the uncertainty created by the on-again, off-again tariff turmoil coming out of the United States.

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