Bank of Canada Lowers Policy Rate to 2.25%

Today, the Bank of Canada lowered the overnight policy rate by 25 bps to 2.25% as was widely expected. This is the bottom of the Bank’s estimate of the neutral overnight rate, where monetary policy is neither expansionary nor contractionary. The economy will grow at about a 0.5% pace in Q3, causing the Bank to cut rates again at the final meeting this year on December 10. The easing will then end, but rates will remain relatively subdued until more trade uncertainty is alleviated.

The Fed is widely expected to cut rates by 25 bps this afternoon as well.

Today’s Monetary Policy Report suggests that the significant decline in export growth will persist for some time. Layoffs in trade-dependent sectors have already slowed considerably, especially in Ontario, Quebec, and some softwood lumber businesses in several provinces. The central bank acknowledged that “because US trade policy remains unpredictable and uncertainty is still higher than usual, this projection is subject to a wider-than-normal range of risks.”

“In the United States, economic activity has been strong, supported by the boom in AI investment. At the same time, employment growth has slowed and tariffs have started to push up consumer prices. Growth in the euro area is decelerating due to weaker exports and slowing domestic demand. In China, lower exports to the United States have been offset by higher exports to other countries, but business investment has weakened.  Global financial conditions have eased further since July and oil prices have been fairly stable. The Canadian dollar has depreciated slightly against the US dollar.”

“Canada’s economy contracted by 1.6% in the second quarter, reflecting a drop in exports and weak business investment amid heightened uncertainty. Meanwhile, household spending grew at a healthy pace. US trade actions and related uncertainty are having severe effects on targeted sectors, including autos, steel, aluminum, and lumber. As a result, GDP growth is expected to be weak in the second half of the year. Growth will get some support from rising consumer and government spending and residential investment, and then pick up gradually as exports and business investment begin to recover.”

Canada’s labour market remains soft, and job vacancies have declined sharply despite the September improvement in job growth. Job losses continue to mount in trade-impacted sectors, and hiring has been weak across the economy. The unemployment rate remained at 7.1%, well above the US rate of 4.3%. Slower population growth translates into fewer new jobs and less inflation pressure. On a per capita basis, the economy is already in a recession.

The Bank projects GDP will grow by 1.2% in 2025, 1.1% in 2026 and 1.6% in 2027. Quarterly, growth strengthens in 2026 after a weak second half of this year. Excess capacity in the economy is expected to persist and be gradually absorbed.

“CPI inflation was 2.4% in September, slightly higher than the Bank had anticipated. Inflation excluding taxes was 2.9%. The Bank’s preferred measures of core inflation have been sticky around 3%. Expanding the range of indicators to include alternative measures of core inflation and the distribution of price changes among CPI components suggests underlying inflation remains around 2.5%. The Bank expects inflationary pressures to ease in the months ahead and CPI inflation to remain near 2% over the projection horizon”.

“If inflation and economic activity evolve broadly in line with the October projection, the Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment. If the outlook changes, we are prepared to respond. Governing Council will be assessing incoming data carefully relative to the Bank’s forecast.”

Bottom Line

The Bank of Canada has shown its willingness to bolster the Canadian economy amid unprecedented trade uncertainty. While Canada is working hard to establish alternate trade partners, even China cannot replace the US in terms of proximity and cost-effectiveness, given the huge transport costs. China has stepped up its oil purchases to record levels, but larger oil flows east will require additional pipelines to BC. There is no market the size of the US market to replace exports of steel and aluminum. The US will also suffer from the economic impact of stepping away from the Canada-US-Mexico free trade deal. A renegotiation of the contract is likely to come before the end of next year. As of now, the US is signalling their desire to exit the agreement. We can only hope that cooler heads will prevail.

The auto industry is a case in point. Onshoring non-US auto production would require a 75% increase in US production and the construction of $50 billion in new factories. This would take years and significantly reduce the profitability of US auto companies.

Canada is the US’s number one supplier of steel and aluminum, with its competitively low hydroelectric costs. It will take time for the US to create the capacity to replace aluminum imports from Quebec.

Canada is the number one trading partner for 32 American states, many of which are lobbying Washington to end this CUSMA bashing.

It will take time for Canada to adjust to this new reality, which leads us to conclude that another cut in overnight rates is probable at the next decision date on December 10.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Canadian Home Sales Post Best September In Four Years

Today’s release of the September housing data by the Canadian Real Estate Association (CREA) showed a pullback on the housing front. The number of home sales recorded through Canadian MLS® Systems declined by 1.7% on a month-over-month basis in September 2025. Nevertheless, it was the best month of September for sales since 2021.

The slight monthly decline was the result of lower sales activity in Greater Vancouver, Calgary, Edmonton, Ottawa, and Montreal, which more than offset gains in the Greater Toronto Area and Winnipeg.

“While the trend of rising sales that began earlier this year took a breather in September, activity was still running at the highest level for that month since 2021, and that was true in July and August as well, said Shaun Cathcart, CREA’s Senior Economist. “With three years of pent-up demand still out there and more normal interest rates finally here, the forecast continues to be for further upward momentum in home sales over the final quarter of the year and into 2026.”

New Listings

New supply dropped 0.8% month-over-month in September. Combined with a slightly larger decline in sales activity, the sales-to-new listings ratio eased slightly to 50.7% compared to 51.2% in August. The long-term average for the national sales-to-new listings ratio is 54.9%, with readings roughly between 45% and 65% generally consistent with balanced housing market conditions.

There were 199,772 properties listed for sale on all Canadian MLS® Systems at the end of September 2025, up 7.5% from a year earlier but very close to the long-term average for that time of the year.

“While there are more buyers in the market now than at almost any other point in the last four years, sales activity is still below average and well below where the long-term trend suggests it should be,” said Valérie Paquin, CREA Chair. “As such, we expect things to continue to pick up steadily in the future.

There were 4.4 months of inventory on a national basis at the end of September 2025, unchanged from July and August and the lowest level since January. The long-term average for this measure of market balance is five months of inventory. Based on one standard deviation above and below that long-term average, a seller’s market would be below 3.6 months, and a buyer’s market would be above 6.4 months.

Home Prices

The National Composite MLS® Home Price Index (HPI) was again almost unchanged (-0.1%) between August and September 2025. Following declines in the first quarter of the year, the national benchmark price has remained mostly stable since April.

The non-seasonally adjusted National Composite MLS® HPI was down 3.4% compared to September 2024. Based on the extent to which prices fell off beginning in the fall of 2024, look for year-over-year declines to shrink in the fourth quarter of the year.

Bottom Line

Homebuyers are responding to improving fundamentals in the Canadian housing market. Supply has risen as new listings surged until May of this year. Additionally, the national benchmark average price is 3.5% lower than it was a year earlier. That decrease was smaller than in August.

The view is nearly unanimous that the Federal Reserve will cut the overnight policy rate again by 25 basis points when it meets again on October 29.

The jury is out on the Bank of Canada’s next move. Their decision date is also October 29. While the stronger-than-expected labour market report might have dissuaded the Bank from easing, all eyes will be on the next CPI report on October 21.

With the Bank of Canada cutting the policy rate halfway through September and another 25-basis-point reduction expected by January, if not sooner, the CREA forecasts sales to rise by 7.7% in 2026.

“Interest rates were always going to be the thing that brought this thing back to life,” Cathcart said in an interview. “While that long-anticipated recovery has been delayed and dampened by trade uncertainty, the Bank of Canada is getting close to dipping out of the neutral range and into stimulative territory.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Canadian Inflation Stronger Than Expected

The Consumer Price Index (CPI) rose 2.4% on a year-over-year basis in September, up from a 1.9% increase in August. The acceleration in headline inflation from 1.9% in August was also larger than the median projection in a Bloomberg survey of economists, which was 2.2%.

On a year-over-year basis, gasoline prices fell less in September (-4.1%) compared with August (-12.7%) due to a base-year effect, leading to an acceleration in headline inflation. Excluding gasoline, the CPI rose 2.6% in September, after increasing 2.4% in August.

A slower year-over-year decline in prices for travel tours (-1.3%) and a larger increase in prices for food purchased from stores (+4.0%) also contributed to the upward pressure in the all-items CPI in September.

The CPI rose 0.1% month over month in September. On a seasonally adjusted monthly basis, the CPI was up 0.4%.

Gasoline prices fell 4.1% year over year in September after a 12.7% decrease in August. The smaller year-over-year decline was primarily due to a base-year effect. In September 2024, prices fell 7.1% month over month due, in part, to lower crude oil prices amid growing concerns of weaker economic growth, particularly in China and the United States. In September 2025, gasoline prices rose 1.9% monthly following refinery disruptions and maintenance in the United States and Canada, which put upward pressure on prices.

On a year-over-year basis, prices for travel tours fell 1.3% in September following a 9.3% decline in August. Despite typically declining on a month-over-month basis in September, travel tour prices rose 4.6% in the month. This was a result of higher prices for destinations in Europe and some parts of the United States, as significant events in destination cities put upward pressure on hotel prices.

Consumers paid 4.0% more year over year for food purchased from stores in September, following a 3.5% increase in August. Faster price growth was driven by increased prices for fresh vegetables (+1.9% in September, compared with -2.0% in August) and sugar and confectionery (+9.2% in September, compared with +5.8% in August).

Year-over-year grocery price inflation has generally trended upward since its most recent low in April 2024 (+1.4%). Grocery items contributing to the general acceleration included fresh or frozen beef and coffee, both due, in part, to lower supply.

Tuition fees, priced annually in September, increased 1.7% in 2025 compared with a 1.8% increase in 2024. Aside from 2019, the 2025 increase was the smallest since 1976, when the index was unchanged (0.0%).

In 2025, students from Prince Edward Island (+4.7%) experienced the largest price increase. At the same time, students from Nova Scotia (+1.1%) and Ontario (+1.1%) had the smallest increase, coinciding with a freeze on tuition fees in both provinces.

Bank of Canada Deputy Governor Rhys Mendes recently warned that traders may be putting too much emphasis on its two “preferred” core inflation measures, the so-called trim and median gauges.

In September, both CPI-median and CPI-trim came in hotter than economists were expecting. The average of these metrics was 3.15% in September, while the three-month moving average accelerated to 2.7%.

Mendes said the central bank is weighing a broader suite of gauges that suggest underlying price pressures are closer to its 2% target.

Shelter inflation rose 2.6% on an annual basis, while CPI excluding food and energy was 2.4%. CPI excluding eight volatile components and indirect taxes was 2.8%, up from 2.6%.
CPI excluding taxes accelerated to 2.9% from 2.4% the previous month.

The share of components within the consumer price index basket that are rising 3% and higher — another key metric that policymakers are watching closely — declined slightly to 38%.

All 10 Canadian provinces saw prices rising at a faster year-over-year pace in September compared with August. Quebec experienced the steepest price growth, reaching 3.3% last month.

Rent prices also accelerated nationally to 4.8%, led by a 9.8% increase in Quebec. Slower rent price growth of 1.8% in British Columbia moderated the national increase, the report noted.

Bottom Line

The report shows that underlying price pressures remain elevated, raising questions about how quickly the central bank can proceed with rate cuts to aid the tariff-hit economy.

Still, the acceleration in headline and most core measures was driven by a gasoline price base-year effect — a possible reason for analysts to look through the print.

Traders in overnight swaps pared bets on a rate cut next week, lowering the odds to about 65% from close to 80% before the report. The loonie jumped to the day’s high against the US dollar. Canadian debt fell across the curve, with the two-year yield rising about three basis points to a session high at 2.38%.

The ongoing trade war with the US drove the Bank of Canada to lower its policy rate by a quarter of a percentage point to 2.5% in September, marking the first cut in six months.

During their deliberations last month, some members of its governing council argued that more support would likely be needed given the softness in the economy, notably if the labour market weakened further.

Bank of Canada Governor Tiff Macklem recently described Canada’s labour market as “soft,” despite data showing the country added 60,400 jobs in September, which only partially reversed a decline of more than 100,000 positions over the previous two months.

The central bank will have to weigh recent economic weakness against concerns about firm core inflation over the past few months. The BoC will cut the overnight policy rate again by 25 bps to 2.25%, responding to its concern for the sectors hardest hit by tariffs, along with a housing market suffering from negative household psychology and overbuilding in the GTA and GVA.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Canadian Employment Rises More Than Expected, But Not Enough To Fully Offset Prior Two-Month Job Loss

Today’s Labour Force Survey for September was stronger than expected, with a net employment gain of 60,400, but the unemployment rate was steady at 7.1% as more people entered the workforce. The employment gain was driven by full-time work. The manufacturing sector–hard hit by US tariffs–added 27,800 employees, and agriculture, health care and other services all added workers. The employment rate — the proportion of the working-age population that’s employed — rose 0.1 percentage points to 60.6% in September.

Average hourly wages among employees increased 3.3% (+$1.17 to $36.78) on a year-over-year basis in September, following growth of 3.2% in August (not seasonally adjusted).

The surprisingly strong job gains suggest Canada’s job market is showing some resilience to tariff disputes with the US. The jump in factory employment, although not driven by autos, suggests the sector may benefit from some exporters’ exemption from levies under the Canada-US-Mexico trade Agreement.

The loonie surged in response to the news as shorter-term interest rates rose. The report reduces expectations for a rate cut when the Bank of Canada meets again on October 29, with traders putting the odds at about 25%, down from 70% before the data release. However, the better-than-expected job gains did not fully offset the losses posted in July and August, as Canada shed a net 45,900 jobs over the third quarter, the weakest quarter since the pandemic.

Total hours worked fell 0.2% last month, and the labour force rose by 72,300.

Even with the latest jobs report, the Canadian economy remains vulnerable to the unsettling US attitude towards the free trade agreement, which is slated to be renegotiated by July 2026. The Bank of Canada cut the overnight policy rate to 2.5% in September, and additional rate cuts are likely this year. The Bank has only two more decision dates in 2025: October 29 and December 10. September inflation data will be released on October 21, the day after the BoC publication of the Business and Consumer Outlook Survey.

The overall unemployment rate was unchanged at 7.1% in September, following a 0.2 percentage point increase in August. Since the start of 2025, the unemployment rate has increased by 0.5 percentage points. The trend has generally been upward since the beginning of the year, with an increase of 0.6 percentage points compared to January. Youth unemployment rates remain elevated, with the jobless rate among students at a whopping 17.1%, and at 11.9% for youth not attending school.

Employment in manufacturing rose in September (+28,000; +1.5%), the first increase since January. The gain was concentrated in Ontario (+12,000) and Alberta (+7,900). Before the rise in September, employment in manufacturing had recorded a net decline of 58,000 (-3.1%) from January to August.

Employment change by industry, September 2025

In Quebec, employment was little changed for a third consecutive month in September. The unemployment rate in Quebec in September (5.7%) was down from the recent peak of 6.3% recorded in June, and little changed on a year-over-year basis. However, Quebec will undoubtedly see job losses in the aluminum and lumber industries unless US tariffs are reduced sharply.

Employment was also little changed in Ontario in September. The unemployment rate in the province increased by 0.2 percentage points to 7.9% in September, as more people searched for work. The unemployment rate in the province was up 0.8 percentage points from September 2024. In the CMA of Toronto, the unemployment rate was unchanged at 8.9% in September 2025 and was up 0.8 percentage points on a year-over-year basis (three-month moving averages).

Bottom Line

The Bank of Canada has made it clear that it will focus on inflation as well as on increasing slack in the economy, and a September cut may still hinge on the consumer price index released next week. Labour markets are still softer than they were a year ago. The unemployment rate held steady at 7.1% in September, but it remains up half a percent from a year ago. International trade data softened in August, and U.S. tariffs remain a significant threat to the economic outlook.

It is doubtful that Bank of Canada policymakers thought in September that just one cut in the overnight rate would be enough to address economic weakness, and the labour force data today probably isn’t positive enough alone to derail another cut in October.  Still, the Bank of Canada will also have to take into account the next round of inflation data – and future cuts beyond October would be less likely if government deficit spending ramps up as expected to help address tariff-related economic weakness.

The central bank is well aware that the Labour Force Survey is notoriously volatile, and the jobless rate at 7.1% is still up half a percentage point from a year ago. The underlying details of the report were not as positive. Actual hours worked declined despite the surge in full-time employment. And permanent layoffs ticked higher. But other sectors have remained broadly resilient. Services employment was up 18k month-over-month and 225k year-over-year last month. All eyes will be on the CPI data next Tuesday.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Bank of Canada Lowers Policy Rate to 2.5%

Today, the Bank of Canada lowered the overnight policy rate by 25 bps to 2.5% as was widely expected. Following yesterday’s better-than-expected inflation report, the Bank believes that underlying inflation was 2.5% year-over-year.

Through the recent period of tariff turmoil, the Governing Council has closely monitored the risks and uncertainties facing the Canadian economy. Three developments triggered the Bank’s rate cut. Canada’s labour market softened further. Upward pressure on underlying inflation has diminished, and there is less upside to risk to future inflation with the removal of most retaliatory tariffs by Canada.

Considerable uncertainty remains. However, with a weaker economy and less upside risk to inflation, the Governing Council deemed that a reduction in the policy rate was appropriate to better balance the risks going forward.

“The Bank will continue to assess the risks, look over a shorter horizon than usual, and be ready to respond to new information.”

Today’s press release suggests that the global economy has slowed in response to trade disputes. In the US, business investment has been substantial, primarily driven by expenditures on Artificial Intelligence. However, consumers are cautious, and employment gains have slowed. It is nearly a certainty that the Federal Reserve will lower its overnight policy rate this afternoon.

“Growth in the euro area has moderated as US tariffs affect trade. China’s economy held up in the first half of the year, but growth appears to be softening as investment weakens. Global oil prices are close to their levels assumed in the July Monetary Policy Report (MPR). Financial conditions have continued to ease, with higher equity prices and lower bond yields. Canada’s exchange rate has been stable relative to the US dollar.”

Canada’s economy contracted in the second quarter, posting a growth rate of -1.6%. Exports fell by 27% in Q2 following a surge in exports in advance of tariffs in Q1. Business investment also fell in Q2. “In the months ahead, slow population growth and the weakness in the labour market will likely weigh on household spending.”

Employment has declined in the past two months. “Job losses have largely been concentrated in trade-sensitive sectors, while employment growth in the rest of the economy has slowed, reflecting weak hiring intentions. The unemployment rate has moved up since March, hitting 7.1% in August, and wage growth has continued to ease.”

Bottom Line

The Bank of Canada was pretty tight-lipped about future rate cuts, but given the current trajectory, we expect another rate cut when they meet again this fall. The next BoC decision date is October 29, and the central bank wraps up the year on December 10. We expect at least one more rate cut this year, ending the year with a policy rate of 2.0%-2.25%. This should help boost interest-sensitive spending, most particularly housing, where there is considerable pent-up demand.

The Bank will move cautiously, but with the Fed cutting rates again later this year, this gives the BoC cover. While some have questioned the Bank’s easing in the face of 3% core inflation, other inflation measures suggest that underlying inflation is roughly 2.5%. The economic and labour market slowdown bodes well for another rate cut.

Traders in overnight swaps continue to price in another cut from the central bank this cycle, and put the odds at about a coin flip that they’ll ease again in October.

The central bank’s communications suggest that while it has resumed monetary easing to support the ailing economy, it is leery of cutting interest rates too quickly, given the potential inflation risks posed by the surge in global protectionism and tariffs.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Canadian Inflation More Muted Than Expected, Giving the Green Light for BoC Easing Tomorrow

The Consumer Price Index (CPI) rose 1.9% on a year-over-year basis in August, up from a 1.7% increase in July.

Gasoline prices fell to a lesser extent year over year in August (-12.7%) compared to July (-16.1%), resulting in faster growth in headline inflation. Excluding gasoline, the CPI rose 2.4% in August, following increases of 2.5% in each of the previous three months.

Moderating the acceleration in the all-items CPI were lower prices for travel tours and fresh fruit compared with July.

The CPI decreased by 0.1% month-over-month in August. On a seasonally adjusted monthly basis, the CPI was up 0.2%.

Yearly, gasoline prices fell 12.7% in August, compared with a 16.1% decline in July. The smaller year-over-year decrease was partially due to a base-year effect. In August 2024, gasoline prices declined 2.6% month over month, as concerns about slower economic growth began to emerge. In August 2025, prices rose 1.4% month-over-month, primarily due to higher refining margins that offset lower crude oil costs.

Prices for cellular services fell to a lesser extent year over year in August (-1.2%) compared with July (-6.6%). Monthly, prices were up 1.5% in August, as multiple providers increased prices with fewer back-to-school sales available for cellular phone plans.
Partially offsetting the price increase were lower prices month over month for multipurpose digital devices (-1.5%), which include smartphones and tablets.

Grocery price inflation remains a thorn, up a tick to 3.5% y/y (and partly explains the gap between the BoC’s 3% core measures and the more benign 2.4%). In August, prices for meat rose 7.2% year-over-year, following a 4.7% increase in July. Prices for fresh fruit fell 1.1% in August, after increasing 3.9% in July. Price declines for grapes, other fresh fruit, and berries (including cherries) contributed the most to the yearly price decrease for fresh fruit in August.

Prices for clothing and footwear rose 1.7% year-over-year last month, compared with a 0.8% increase in July. The increase in August was primarily due to a base-year effect, as prices declined by 0.6% in August 2024.

Year over year, prices for travel services decreased 3.8% in August, following a 1.2% decrease in July.

Shelter cost trends are now more favourable, as sagging home prices and a rare lull in home insurance costs cut owned accommodation by 0.1% month-over-month for a second consecutive month; this had not occurred since 2020. Rent remains the single most significant driver of overall inflation, although it cooled to 4.5% y/y (from 5.1%) and seems headed lower.

Core inflation was largely as expected, with most major measures rising a moderate 0.2% m/m in adjusted terms, but keeping the Bank of Canada’s preferred gauges locked around the 3% y/y pace. Median held steady at 3.1% y/y, while trim eased a tick to 3.0%.

However, the shorter-term metrics on most of the core indices were more favourable, as the three-month trend on trim and median averaged 2.5%. Recall that the BoC has recently suggested underlying inflation trends are around 2-1/2%, and even the ex-food and energy component chimed in with a 2.4% year-over-year clip, with the three-month trend easing to just 1.6%. (For reference, U.S. ex food & energy CPI was 3.1% y/y last month.)

On the trade war watch, goods excluding energy and groceries eased slightly to a 1.7% year-over-year pace from 2.0% in July. That’s still a bit hotter than the pre-pandemic norm, but less than half the pace seen during the pandemic inflation scare of 2022/23. Auto prices had been leading the way higher in recent months, but they cooled slightly to 4.0% y/y, from 4.5% the prior month.

Bottom Line

This report showed inflation measures rising no more than a tame 0.2% month-over-month (m/m) in seasonally adjusted terms. That pace won’t cause the Bank of Canada much stress, thus keeping them on track for a rate cut at tomorrow’s decision.

The milder underlying short-term trends in core, alongside the recent weakening in employment, bode well for further rate relief this fall. However, we suspect the Bank will continue to take it one meeting at a time, restrained by the 3% year-over-year trends in some core measures, as well as the likelihood that headline inflation will rise, at least temporarily, in next month’s report due to base effects.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Canadian Home Sales Post Best August In Four Years

Today’s release of the August housing data by the Canadian Real Estate Association (CREA) showed good news on the housing front. The number of home sales recorded through Canadian MLS® Systems increased by 1.1% on a month-over-month basis in August 2025. It was the best August for sales since 2021, marking the fifth consecutive monthly increase in activity and a cumulative 12.5% gain since March.

Unlike in recent months, when gains were led overwhelmingly by the Greater Toronto Area (GTA), sales in the GTA were down slightly in August; however, this was more than offset by higher sales in Montreal, Greater Vancouver, and Ottawa.

“Activity has continued to gradually pick up steam over the last five months, but the experience from a year ago suggests that trend could accelerate this fall,” said Shaun Cathcart, CREA’s Senior Economist. “Part of what drives sales at different points in the year is the availability of a lot of fresh property listings for buyers to buy. For the fall market, that always happens right at the beginning of September, and this year was no exception. If last year is any kind of guide, then there is the potential that sales could really pick up in the next month or so depending on how many buyers are drawn off the sidelines, particularly if we see a September rate cut by the Bank of Canada.”

New Listings

“August continued the trend of rising sales in many markets across the country, and while momentum slowed compared to July, much of that is simply a reflection of the time of year,” said Valérie Paquin, CREA Chair. “Now that we are on the other side of Labour Day, new listings are flooding onto the market.”

There were 4.4 months of inventory on a national basis at the end of August 2025, the lowest level since January. The long-term average for this measure of market balance is five months of inventory. Based on one standard deviation above and below that long-term average, a seller’s market would be below 3.6 months, and a buyer’s market would be above 6.4 months.

Home Prices

The National Composite MLS® Home Price Index (HPI) was again almost unchanged (-0.1%) between July and August 2025. Following declines in the first quarter of the year, the national benchmark price has been mostly stable since April, when the market bottomed.

The non-seasonally adjusted National Composite MLS® HPI was down 3.4% compared to August 2024. Based on the extent to which prices fell off beginning in the fall of 2024, look for year-over-year declines to continue to shrink in the months ahead.

Bottom Line

Homebuyers are responding to improving fundamentals in the Canadian housing market. Supply has risen as new listings surged until May of this year. Additionally, the benchmark price was $664,078, which is more than 4% lower than it was a year earlier. That decrease was smaller than in June, and the board expects year-over-year declines to continue shrinking, it stated in a press release.

The view is nearly unanimous that both the Federal Reserve and the Bank of Canada will cut the overnight policy rate by 25 basis points when they meet again this Wednesday, September 17. The Canadian CPI for August will be released tomorrow, and if inflation is relatively stable or down, the Bank could continue to lower rates in October and December as well. This could be what it takes to move potential buyers off the sidelines.

While trade uncertainty is likely to persist, we can expect to see accelerated housing activity during the fall selling season, which is contrary to standard seasonal patterns.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Weak August Jobs Report in Canada Bodes Well for a BoC Rate Cut

Today’s Labour Force Survey for August was weaker than expected, indicating an excess supply in the labour market and the economy. Employment fell by 66,000 (-0.3%) in August, extending the decline recorded in July (-41,000; -0.2%). The employment decrease in August was mainly due to a decline in part-time work (-60,000; -1.5%). Full-time employment was little changed in August, following a decrease in July (-51,000; -0.3%).

The employment rate—the proportion of the working-age population who are employed—fell 0.2 percentage points to 60.5% in August, the second consecutive monthly decline. The employment rate has been on a downward trend since the beginning of the year, falling 0.6 percentage points from January to August.

The number of self-employed workers fell by 43,000 (-1.6%) in August. Self-employment has trended down in recent months, offsetting gains recorded in the second half of 2024 and in early 2025.

The private sector lost 7,500 jobs last month, while the public sector shed 15,000. Regionally, the provinces of Ontario, Alberta and British Columbia led losses.

Those who were unemployed in July continued to face difficulties finding work in August. Just 15.2% of those who were unemployed in July had found work in August, lower than the corresponding proportion for the same months from 2017 to 2019 (23.3%) (not seasonally adjusted).

The participation rate—the proportion of the population aged 15 and older who were employed or looking for work—fell by 0.1 percentage points to 65.1% in August.

From May to August, the Labour Force Survey (LFS) collects labour market information from students who attended school full-time in March and who intend to return to school full-time in the fall.

The unemployment rate for returning students stood at 16.9% in August, similar to the rate observed 12 months earlier (16.3%) (not seasonally adjusted).

For the summer of 2025 overall (the average from May to August), the unemployment rate for returning students aged 15 to 24 was 17.9%. This was the highest since the summer of 2009 (18.0%), excluding the pandemic year of 2020. The unemployment rate for returning students has increased each summer since 2022 (when it was 10.4%).

The unemployment rate among returning students in the summer of 2025 was higher for men (19.2%) than for women (16.8%).

Employment decreased in the professional, scientific, and technical services sector in August (-26,000; -1.3%), following five months of little change. Despite the monthly decline, employment in the industry was up 36,000 (+1.8%) compared with 12 months earlier.

Employment in transportation and warehousing fell by 23,000 (-2.1%) in August, offsetting a similar-sized increase in July. On a year-over-year basis, employment in the industry was little changed in August.

Employment change by industry in August 2025

Fewer people were working in manufacturing in August, down 19,000 (-1.0%). Compared with the recent peak of January 2025, employment in manufacturing has declined by 58,000 (-3.1%).

On the other hand, employment rose in construction (+17,000; +1.1%) in August, offsetting most of the decline in July (-22,000; -1.3%). Employment in construction has recorded little net variation since the beginning of the year, and the increase in August was the first since January.

Employment in Ontario decreased by 26,000 (-0.3%) in August. Compared to the recent peak in February 2025, employment in the province decreased by 66,000 (-0.8%) in August. The unemployment rate in Ontario declined by 0.2 percentage points to 7.7% in August, as the number of people searching for work decreased.

Since the beginning of the year, regions of Southern Ontario have faced an uncertain economic climate, brought on by the threat or imposition of tariffs, including on motor vehicle and parts exports. Across Canada’s 20 largest census metropolitan areas, the highest unemployment rates in August were in Windsor (11.1% compared with 9.1% in January), Oshawa (9.0% compared with 8.2% in January) and Toronto (8.9% compared with 8.8% in January) (three-month moving averages).

In British Columbia, employment decreased by 16,000 (-0.5%) in August, marking the second consecutive monthly decline. Losses in the month were mainly among core-aged men (-13,000; -1.2%). The unemployment rate in British Columbia rose 0.3 percentage points to 6.2%.

In Alberta, employment fell by 14,000 (-0.6%) in August, also the second consecutive monthly decrease. The most significant declines in the month were in manufacturing and in wholesale and retail trade. The unemployment rate in Alberta rose 0.6 percentage points to 8.4% in August, the highest rate since August 2017 (excluding 2020 and 2021).

Unemployment rate by province and territory, August 2025

Unemployment rates highest in southern Ontario census metropolitan areas Employment also declined in New Brunswick (-6,500; -1.6%), Manitoba (-5,200; -0.7%), and Newfoundland and Labrador (-3,200; -1.3%) in August. Meanwhile, Prince Edward Island experienced an employment gain of 1,100 (+1.2%). Employment held steady for a second consecutive month in Quebec in August. The number of people looking for work increased by 24,000 (+9.0%), pushing the unemployment rate up 0.5 percentage points to 6.0%. Total hours worked were little changed in August (+0.1%) and were up 0.9% compared with 12 months earlier. Average hourly wages among employees increased 3.2% (+$1.12 to $36.31) on a year-over-year basis in August, following growth of 3.3% in July (not seasonally adjusted). Bottom Line The two-year government of Canada bond yield fell about four bps on the news, while the loonie weakened. Traders in overnight swaps fully priced in a quarter-point rate cut by the Bank of Canada by year-end, and boosted the odds of a September cut to about 85%. The Bank of Canada has made it clear that it will focus on inflation more than on increasing slack in the economy, and a September cut may still hinge on the consumer price index release, which is due a day before the rate decision. The August US nonfarm payrolls report was also released this morning, showing that job growth stalled while the unemployment rate rose slightly to 4.3%. Several sectors, including information, financial activities, manufacturing, federal government and business services, posted outright declines in August. Job growth was concentrated in the healthcare and leisure and hospitality sectors. Markets expect the Fed to cut rates by 25 basis points on September 17. Fed Chair Jay Powell has been under massive pressure from the White House to do so. Barring a meaningful rise in August core inflation measures, the Fed will resume cutting rates. Dr. Sherry Cooper Chief Economist, Dominion Lending Centres drsherrycooper@dominionlending.ca

Tariff Turmoil Takes Its Toll

Statistics Canada released Q2 GDP data, showing a weaker-than-expected -1.6% seasonally adjusted annual rate, in line with the Bank of Canada’s forecast, but a larger dip than the consensus forecast. The contraction primarily reflected a sharp decline in exports, down 26.8%, which reduced headline GDP growth by 8.1 percentage points. Business fixed investment was also weak, contracting 10.1%, mainly due to a 32.6% decline in business equipment spending.

Exports declined 7.5% in the second quarter after increasing 1.4% in the first quarter. As a consequence of United States-imposed tariffs, international exports of passenger cars and light trucks plummeted 24.7% in the second quarter. Exports of industrial machinery, equipment and parts (-18.5%) and travel services (-11.1%) also declined.

Amid the counter-tariff response by the Canadian government to imports from the United States (which has now been rescinded), international imports declined 1.3% in the second quarter, following a 0.9% increase in the previous quarter. Lower imports of passenger vehicles (-9.2%) and travel services (-8.5%; primarily Canadians travelling abroad) were offset by higher imports of intermediate metal products (+35.8%), particularly unwrought gold, silver, and platinum group metals.

Export (-3.3%) and import (-2.3%) prices fell in the second quarter, as businesses likely absorbed some of the additional costs of tariffs by lowering prices. Given the larger decline in export prices, the terms of trade—the ratio of the price of exports to the price of imports—fell 1.1%.

But the report was not all bad news. Consumer resilience was also evident. Household consumption spending accelerated in Q2. Personal spending rose 4.5% compared to 0.5% in Q1. Government spending also notably contributed to growth.

An improvement in housing activity also added to economic activity. Residential investment grew at a firm rate of 6.3%, compared to a decline of 12.2% in the first quarter of the year.

Final domestic demand rose 3.5% annualized, reflecting resilience and perhaps Canadians’ boycott of US travel or US products. However, income growth was up just 0.7% year-over-year (at an annual rate), which pulled the savings rate down one percentage point to 5.0%, potentially hampering consumers’ ability to continue their spending.

Inventories of finished goods and inputs to the production process increased by 26.9%, reflecting the Q1 stockpiling of goods that would be subject to future tariffs.

While Q2 was soft, June GDP was arguably more disappointing at -0.1% m/m, two ticks below consensus. Manufacturing was the surprise, falling 1.5%. Services were mixed, with gains in wholesale and retail offsetting some broader weakness. The July flash estimate was +0.1% (on the firmer side, given some of the soft data thus far), but the June figure makes it clear that the final print can be quite different.

The Bank had Q2 GDP at -1.5% in their July Monetary Policy Report, so the miss was minor. And, the strength in domestic demand highlights the economy’s resilience. One negative is that Q3 is tracking softer than their +1% estimate (closer to +0.5%), but it’s still very early, and things can change materially.

Bottom Line

The odds are no better than even for the Bank of Canada to cut rates when they meet again on September 17. There are two key data releases before then — the August Labour Force Survey, released August 5, a week from today, and the August CPI release on September 16. We would have to see considerable weakness in both reports to trigger a Canadian rate cut next month.

A Fed rate cut is far more likely, as telegraphed by Chair Jay Powell at the annual Jackson Hole confab. The battle between the White House and the Fed has intensified with President Trump’s firing of Governor Lisa Cook, the first Black woman on the Board and a Biden appointee. If Trump were to succeed, it would enable him to appoint a majority of the Federal Reserve Board, potentially allowing him to dictate monetary policy.

Trump wants significantly lower interest rates in the US, but even if he succeeds, only shorter-term rates would decline. The loss of Fed independence could lead to higher, longer-term interest rates, which could likely result in higher fixed mortgage rates in Canada. Moreover, inflation pressures could intensify, leading to continued upward pressure on bond yields and diminishing the potential appeal of floating-rate mortgage loans.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Canadian Homebuyers Return in July, Posting the Fourth Consecutive Sales Gain

Today’s release of the July housing data by the Canadian Real Estate Association (CREA) showed good news on the housing front. Following a disappointing spring selling season, National home sales were up 3.8% in July from the month before, with Toronto seeing transactions rebound 35.5% since March. However, the total number of Toronto sales remains low by historical standards.

On a year-over-year basis, total transactions have risen 11.2% since March.

There is growing confidence that the Canadian economy will resiliently weather the tariff trauma. The Canadian dollar is up, and longer-term interest rates have edged downward in the past ten days. Traders are now anticipating a rate cut by the Federal Reserve in September.

Tuesday’s release of the Canadian CPI will provide another data point for the Bank of Canada. Economic growth has held up, in large part because much of the pain from tariffs has been confined to industries singled out for levies, including autos, steel and aluminum.

Shaun Cathcart, the real estate board’s senior economist, said, “With sales posting a fourth consecutive increase in July, and almost 4% at that, the long-anticipated post-inflation crisis pickup in housing seems to have finally arrived. The shock and maybe the dread that we felt back in February, March and April seem to have faded,” as people become less concerned about their future employment.

New Listings

New supply was little changed (+0.1%) month-over-month in July. Combined with the notable increase in sales, the national sales-to-new listings ratio rose to 52%, up from 50.1% in June and 47.4% in May. The long-term average for the national sales-to-new listings ratio is 54.9%, with readings roughly between 45% and 65% generally consistent with balanced housing market conditions.

There were 202,500 properties listed for sale on all Canadian MLS® Systems at the end of July 2025, up 10.1% from a year earlier and in line with the long-term average for that time of the year.

“Activity continues to pick up through the transition from the spring to the summer market, which is the opposite of a normal year, but this has not been a normal year,” said Valérie Paquin, CREA Chair. “Typically, we see a burst of new listings right at the beginning of September to kick off the fall market, but it seems like buyers are increasingly returning to the market.

There were 4.4 months of inventory on a national basis at the end of July 2025, dropping further below the long-term average of five months of inventory as sales continue to pick up. Based on one standard deviation above and below that long-term average, a seller’s market would be below 3.6 months, and a buyer’s market would be above 6.4 months.

Home Prices

The National Composite MLS® Home Price Index (HPI) was unchanged between June and July 2025. Following declines in the first quarter of the year, the national benchmark price has remained mostly stable since May.

The non-seasonally adjusted National Composite MLS® HPI was down 3.4% compared to July 2024. This was a smaller decrease than the one recorded in June.

Based on the extent to which prices fell off in the second half of 2024, look for year-over-year declines to continue to shrink in the months ahead.

Bottom Line

Homebuyers are responding to improving fundamentals in the Canadian housing market. Supply has risen as new listings surged until May of this year. Additionally, the benchmark price was $688,700, 3.4% lower than a year earlier. That decrease was smaller than in June, and the board expects year-over-year declines to continue shrinking, it said in a statement.

While many expect the Fed to ease in September, I’m not sure it will happen. The producer price index came in hotter than expected this week. Fed action will depend mainly on the personal consumption expenditures index (PCE), the Fed’s favourite measure of inflation, which will be out on August 29.

US stagflation worries have emerged with the release of the July employment report, which showed considerable weakness, enough to get the head of the Bureau of Labour Statistics fired. The likelihood of a BoC cut will increase if the Fed begins a series of easing moves as the administration is demanding.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca