15 Jul

Canadian Housing Might Be Turning A Corner As Sales Picked Up in June and Prices Flattened

General

Posted by: Liz Fraser

Home Sales Rose As Prices Stabilized–Housing Market is Turning a Corner
The number of home sales recorded over Canadian MLS® Systems rose 2.8% on a month-over-month basis in June 2025, building on the 3.5% gain recorded in May.Over the past two months, the recovery in sales activity has been led overwhelmingly by the Greater Toronto Area (GTA), where transactions, although remaining historically low, have rebounded by a cumulative 17.3% since April.

“At the national level, June was pretty close to a carbon copy of May, with sales up about 3% on a month-over-month basis and prices once again holding steady,” said Shaun Cathcart, CREA’s Senior Economist. “It’s another month of data suggesting the anticipated rebound in Canadian housing markets may have only been delayed by a few months, following a chaotic start to the year; although with the latest 35% tariff threat, we’re not out of the woods yet.”

New ListingsNew supply declined by 2.9% month-over-month in June. With sales up and new listings down, the national sales-to-new-listings ratio rose to 50.1%, up from 47.3% in May. The long-term average for the national sales-to-new listings ratio is 54.9%, with readings between 45% and 65% generally consistent with balanced housing market conditions.

There were 206,435 properties listed for sale on Canadian MLS® Systems at the end of June 2025, up 11.4% year-over-year and just 1% below the long-term average for that time of the year.

“Most housing markets continued to turn a corner in June, although market conditions still vary considerably depending on where you are in Canada,” said Valérie Paquin, CREA Chair. “If the spring market was mostly held back by economic uncertainty, barring any further big shocks, that delayed activity could very likely surface this summer and into the fall.”

Home PricesThe National Composite MLS® Home Price Index (HPI) was little changed (-0.2%) from May to June 2025, following three straight month-over-month declines of closer to 1% in February, March, and April.

The non-seasonally adjusted National Composite MLS® HPI was down 3.7% compared to June 2024. Based on the extent to which prices fell off in the second half of 2024, expect year-over-year declines to shrink in the months ahead.

Bottom Line

There is every indication that the housing markets in the GTA and the GVA are beginning to perk up following a disappointing Spring market. Sales generally increased in May and June, and new listings fell last month. The price data suggest a flattening in prices. Tariff uncertainty has swamped the psychology of many potential buyers, who are reticent to make a move. The latest 35% tariff threat from Washington doesn’t help.

And while the central bank was expected to lower interest rates further, it took a pass at the prior two meetings and is likely to do so again on July 30th when it meets. This morning’s CPI release for June showed a continued rise in core inflation, effectively ruling out a BoC rate cut.

Moreover, longer-term interest rates are market-driven and have been trending higher since March, when tariff sabre-rattling began in earnest. Canada’s five-year government bond yield broke above its key 3% support level in the past week. This could well trigger another rise in fixed mortgage rates. Furthermore, the Canadian two-year yield is 2.83%, which is above the Bank’s overnight policy rate of 2.75%. This suggests that monetary easing in Canada may be over for this cycle, provided the economy remains resilient. Of course, given the TACO issue (an acronym that stands for Trump Always Chickens Out), any forecast bears more than the usual uncertainty.

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

Canadian Inflation Accelerates by 1.9% y/y in June; US inflation comes in below forecast for the fifth consecutive month

General

Posted by: Liz Fraser

Today’s Report Shows Inflation Remains a Concern, Forestalling BoC Action
Canadian consumer prices accelerated for the first time in four months in June, and underlying price pressures firmed, likely keeping the central bank from cutting interest rates later this month.

The annual inflation rate in Canada rose to 1.9% in June from 1.7% in May, aligning with market expectations. Despite the pickup, the rate remained below the Bank of Canada’s mid-point target of 2% for the third consecutive month.

Headline inflation grew at a faster pace, as gasoline prices fell to a lesser extent in June (-13.4%) than in May (-15.5%). Additionally, faster price growth for some durable goods, such as passenger vehicles and furniture, put upward pressure on the CPI in June.

Prices for food purchased from stores rose 2.8% year-over-year in June, following a 3.3% increase in May.

Year over year, the CPI excluding energy (+2.7%) remained higher than the CPI in June, partly due to the removal of consumer carbon pricing in April.

Monthly, the CPI rose 0.1% in June. On a seasonally adjusted monthly basis, the CPI was up 0.2%.

The Bank of Canada’s two preferred core inflation measures accelerated slightly, averaging 3.05%, up from 3% in May, and above economists’ median projection. The three-month moving annualized average of the core rates surged to 3.39%, from 3.01% previously.

There’s also another important sign of firmer price pressures: The share of components in the consumer price index basket that are rising by 3% or more — another key metric the central bank’s policymakers are watching closely — expanded to 39.1%, from 37.3% in May.

Bottom Line

The chart below, created by our friends at Mortgage Logic News, shows that  Canadian economic data have come in stronger than expected on average in recent weeks. This was evident in the June employment report. As a result, the Bank of Canada is likely to remain on the sidelines on July 30 for the third consecutive meeting. The Canadian economy appears to be weathering the tariff storm better than expected, at least for now.

While we expect to see a negative print on Q2 GDP growth, a bounce back to positive growth in Q3 is also possible, precluding the much-expected Canadian recession.

The June inflation data, released today for the US, was weaker than expected for the core price index. Declines in car prices helped mitigate tariff-related increases in other goods within the US consumer basket.

The US inflation data could draw even greater calls from President Trump for the Federal Reserve to lower interest rates. While some officials have expressed a willingness to cut rates when the central bank meets in two weeks, policymakers are generally still divided as to whether tariffs will cause a one-time price shock or something more persistent. They will leave rates unchanged for now.

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

Canadian GDP is Set To Contract In Q2

General

Posted by: Liz Fraser

Canada Is Headed For A Moderate Economic Contraction in Q2
Real gross domestic product (GDP) edged down 0.1% in April, following a 0.2% increase in March. The preliminary estimate for May was also -0.1%.

April and May were months of the most significant tariff uncertainty–both auto, steel, and aluminum tariffs were announced during this period. The 0.1% drawdown in April GDP had a wide variety of special factors at play in that month of high drama. The biggest drag by far was a steep 1.9% fall in manufacturing, including a 5.2% drop in the auto sector, as firms dealt with the initial wave of tariffs, as well as some further pullback after earlier tariff front-running.

Tariff front-running led to a surge in US imports in the first quarter. Revisions to the Q1 data in the States now show a 0.5% contraction, worse than initially reported.

Other trade-related sectors were soft, with wholesale trade down 1.9% and transportation & warehousing off 0.2%. Providing some offset was the Federal election in the month, which boosted federal public administration 2.8% m/m. StatCan notes that the start of the NHL playoffs, with five Canadian teams in the mix (more than usual), boosted the arts and entertainment sector by 2.8%. Hotels and restaurants also firmed (+0.6%), potentially supported by Canadians vacationing closer to home, and the NHL playoffs may have also contributed to the increase. Were it not for the election boost and entertainment, real GDP would have been down 0.2% in April.

May’s expected drop was due, in part, to the reversal of the election bump in public administration spending, as well as softness in the resource sector and retail trade. Notably, StatCan did not mention manufacturing as a source of weakness. Still, earlier this week, it reported a 1.3% drop in May factory sales and a 0.4% decline in wholesale in flash reports, which no doubt also weighed.

In other news, the US released its May personal consumption expenditures, which fell 0.3% after adjusting for inflation. President Trump’s economic policies are weighing on the outlook for US growth, which could prompt the Fed to take action in the coming months.

The Federal Reserve’s preferred inflation gauge, the PCE price index minus food and energy, rose 0.2% — slightly more than expected, though still consistent with limited price pressures.The decline in spending, which was broad-based, coincides with depressed consumer sentiment this year in response to President Donald Trump’s unpredictable trade policy. Inflation has been muted so far in 2025, although many economists expect it to pick up in the next few months as businesses increasingly pass higher import duties on to households.

The latest figures suggest sluggish US household demand, especially for services, extended into May after the weakest quarter for personal consumption since the onset of the pandemic. Spending on transportation services, meals out, accommodation, financial services, and other services — a category that includes net foreign travel — all declined last month. US personal income, meanwhile, fell in May by the most since 2021 on a pullback in government transfers, led by a decrease in Social Security payments. The saving rate fell to 4.5%.

Bottom Line

Chair Jay Powell told Congress this week that he expects inflation to pick up in June, July and August as tariffs become increasingly reflected in consumer prices. However, he added that if that prediction fails to materialize, the US central bank could resume interest-rate reductions sooner rather than later.

Weaker consumer and business spending, along with modest inflation, bode well for another rate cut by the Bank of Canada as well. There is another whole month of data before the BoC meets again on July 30. Many economists now believe the Bank’s rate-cutting cycle is over. I’m not convinced.

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

Canada Unexpectedly Adds 83,100 Jobs in June, The Biggest Gain of 2025

General

Posted by: Liz Fraser

Canada’s Economy Shows Amazing Resilience in June
The Canadian economy refuses to buckle under the weight of tariff uncertainty and further potential tariff hikes. The Labour Force Survey, released this morning for June, showed a surprising net new job gain of 83,100 positions, the most significant number of jobs this year. A whopping 84% of the employment gain was in part-time work.

June marked the first time in five months when the economy created enough jobs to keep unemployment from rising, after months of tepid gains and losses. At the same time, Canada added a net of 143,800 jobs over the last six months, the slowest first-half year pace since 2018, excluding the pandemic, with a monthly average of 24,000 job gains.

The central bank has held interest rates at 2.75% for the past two meetings, and its path ahead will depend mainly on how the economy and inflation adapt to tariffs and trade uncertainty. While the economy is expected to slow in the second quarter, firm inflation remains a concern for policymakers, who will set rates again on July 30.

Traders in overnight swaps trimmed expectations of easing at that meeting, putting the odds of a quarter percentage point cut at about 15%, from 30% before the release.

The employment rate—the proportion of the population aged 15 years and older who are employed—increased by 0.1 percentage points to 60.9% in June. The employment rate had previously recorded a cumulative decline of 0.3 percentage points in March and April and had held steady in May.The number of employees increased in both the private (+47,000; +0.3%) and public (+23,000; +0.5%) sectors in June, while the number of self-employed workers was little changed.

The unemployment rate increased 0.1 percentage points to 7.0% in May, the highest rate since September 2016 (excluding 2020 and 2021, during the pandemic). The uptick in May was the third consecutive monthly increase; since February, the unemployment rate has risen by 0.4 percentage points.

There were 1.6 million unemployed people in May, an increase of 13.8% (+191,000) from 12 months earlier. A smaller share of people who were unemployed in April transitioned into employment in May (22.6%), compared with one year earlier (24.0%) and compared with the pre-pandemic average for the same months in 2017, 2018 and 2019 (31.5%) (not seasonally adjusted). This indicates that people face greater difficulties finding work in the current labour market.

The average duration of unemployment has also been rising; unemployed people had spent an average of 21.8 weeks searching for work in May, up from 18.4 weeks in May 2024. Furthermore, nearly half (46.5%) of people unemployed in May 2025 had not worked in the previous 12 months or had never worked, up from 40.7% in May 2024 (not seasonally adjusted).

The layoff rate—representing the proportion of people who were employed in April but became unemployed in May as a result of a layoff—was 0.6%, unchanged from May 2024 (not seasonally adjusted).

The unemployment rate fell 0.1 percentage points to 6.9% in June, the first decrease since January. Before this decline, the unemployment rate had increased for three consecutive months ending in May 2025, reaching its highest level (7.0%) since September 2016 (excluding 2020 and 2021, during the COVID-19 pandemic).

In June, the unemployment rate among core-aged women fell 0.3 percentage points to 5.4%. Among core-aged men, it was little changed at 6.1%, as the number of job searchers held steady despite the employment gains.

Notably, age 25-54 employment rose 90,600 (which is the most significant increase on record, excluding the 2020-2022 pandemic distortion), lowering their jobless rate to 5.8%, reversing May’s increase.

There were 1.6 million unemployed people in June, little changed in the month but up 128,000 (+9.0%) on a year-over-year basis.

Compared with one year earlier, long-term unemployment was up in June 2025. Over one in five unemployed people (21.8%) had been searching for work for 27 weeks or more in June, an increase from 17.7% in June 2024.

More people are employed in wholesale and retail trade, health care, and social assistance.

Employment in wholesale and retail trade increased by 34,000 (+1.1%) in June, the second consecutive monthly gain. The increase in June was concentrated in retail trade (+38,000; +1.7%). On a year-over-year basis, employment in wholesale and retail trade was up by 84,000 (+2.9%).

Employment change by industry, June 2025

Employment also rose in health care and social assistance (+17,000; +0.6%) in June, the first notable change since December 2024. Compared with 12 months earlier, employment in the industry grew by 78,000 (+2.8%) in June 2025.

Agriculture was the only industry with a notable employment decline (-6,000; -2.6%) in June. On a year-over-year basis, employment in agriculture was little changed. Amazingly, the manufacturing sector showed a considerable job gain in June, rising 10,500, breaking a four-month losing streak. GDP may bounce back in June, but Q2 is still tracking negative, suggesting productivity was much softer, too.

Regionally, Alberta, Ontario and Quebec accounted for the bulk of job gains, while Atlantic Canada was a soft spot. Ontario’s jobless rate slipped a tick to 7.8%, still well above the national average and the highest among the larger provinces. That comes in sharp contrast to B.C., where a significant decline in the labour force pulled the unemployment rate down 0.8 ppts to 5.6%, third lowest in the country behind Saskatchewan (4.9%) and Manitoba (5.5%).

Hours worked were solid as well,  up 0.5% m/m in June, leaving them up 1.3% annualized for the quarter.

Bottom Line

Wage inflation also continues to decelerate, providing some relief for the Bank of Canada. However, with the labour market showing some resilience, the odds of an overnight rate cut in July are minimal.

In other news, Trump Threatens 35% Tariff on Some Canadian Goods: The U.S. will put a 35% tariff on imports from Canada effective Aug. 1, President Trump announced on Thursday evening. But an exemption for goods that comply with the nations’ free-trade agreement, the U.S.-Mexico-Canada Agreement, would still apply, accounting for just over 90% of Canadian-US trade. A White House official said, stressing that it could change. WSJ

Barring a sharp decline in next week’s CPI data for June, which is unlikely, the strength in today’s jobs report and the recently heightened uncertainty on the trade front likely keep the BoC on the sidelines when it meets late this month.

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

Canadian CPI inflation held steady at 1.7% y/y in May. Core inflation edged downward

General

Posted by: Liz Fraser

Today’s Report Shows Inflation Remains a Concern
The Consumer Price Index (CPI) rose 1.7% year-over-year in May, matching the 1.7% increase in April.

A reduced rent price increase and a decline in travel tour prices put downward pressure on the CPI in May compared with one year earlier. Smaller declines for gas and cellular services put upward pressure on the index compared with the previous month.

Excluding energy, the CPI rose 2.7% in May, following a 2.9% increase in April.

The CPI rose 0.6% in May, and on a seasonally adjusted monthly basis, it was up 0.2%.
The shelter component grew more slowly year over year in May, rising 3.0% following a 3.4% increase in April.

Rent prices rose 4.5% yearly in May, compared with a 5.2% increase in April. Rent price growth slowed the most in Ontario, with prices rising 3.0% in May following a 5.4% increase in April. The increased availability of rental units, coupled with slower population growth compared with the previous year’s spring, contributed to the slowdown in rent price growth in May. Given Ontario’s considerable weight nationally, these effects alone were enough to offset faster price growth in seven other provinces.

The mortgage interest cost index decelerated for the 21st consecutive month in May (6.2%)  after rising 6.8% in April.

Year over year, prices for travel tours fell 0.2% in May after rising 6.7% the previous month. Prices for air transportation decreased 10.1% on an annual basis in May, following a 5.8% decline in April.

Gasoline led the decline in consumer energy prices again this month, down 15.5% year over year in May after declining 18.1% in April. Gasoline prices in May remained below May 2024 levels, primarily due to the removal of the consumer carbon levy.

In May 2025, gasoline prices increased 1.9% month over month. The increase was primarily attributed to higher refining margins, partially due to higher switching costs to summer blends.

Prices for new passenger vehicles rose 4.9% yearly in May, after increasing 4.6% in April. Higher prices for some electric cars primarily drove this faster price growth.

After last month’s unpleasant inflation surprise, May’s data came in as expected. Top-line inflation continues to be restrained as the impact of the end to the consumer carbon tax offset changes in energy prices. Core inflation had good news, too, as all four measures cooled amid falling travel, tour and rent prices. The ongoing challenges in the housing market (particularly in Ontario) should help temper further rent gains in the coming months.

After last month’s uptick in core inflation, some give-back was expected. The labour market remains soft, and tepid domestic demand growth should keep a lid on inflationary pressures. Retail sales were weaker than expected. As has been the case this year, the outlook heavily depends on how trade negotiations evolve, but the soft economic backdrop should give the BoC space to deliver two more cuts this year

Bottom Line

The Bank of Canada has said that it doesn’t want to see a tariff problem turn into an inflation problem. It has also suggested that its CPI trimmed-mean and CPI Median measures of core inflation might be biased upward because of measurement issues (They are expected to publish more about this in the future.)

While the Bank won’t give up its hard-won credibility as an inflation fighter, further easing in economic growth will likely force the central bank to cut rates one or two more times this year.

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

Canadian National Home Sales Were Up 3.6% Month-over-Month

General

Posted by: Liz Fraser

Global Tariff Uncertainty Sidelines Buyers
Canadian existing home sales recorded over the MLS Systems climbed 3.6% between April and May, a normally strong month for housing, marking the first gain in activity since last November.

The Greater Toronto Area (GTA), Calgary, and Ottawa led the monthly increase.

“May 2025 not only saw home sales move higher at the national level for the first time in more than six months, but prices at the national level also stopped falling,” said Shaun Cathcart, CREA’s Senior Economist. “It’s only one month of data, and one car doesn’t make a parade, but there is a sense that maybe the expected turnaround in housing activity this year was just delayed for a few months by the initial tariff chaos and uncertainty.”

New Listings

New supply declined by 1% month-over-month in April. Combined with flat sales, the national sales-to-new listings ratio climbed to 46.8% compared to 46.4% in March. The long-term average for the national sales-to-new listings ratio is 54.9%, with readings between 45% and 65% generally consistent with balanced housing market conditions.

At the end of April 2025, 183,000 properties were listed for sale on all Canadian MLS® Systems, up 14.3% from a year earlier but still below the long-term average of around 201,000 listings.

“The number of homes for sale across Canada has almost returned to normal, but that is the result of higher inventories in B.C. and Ontario, and tight inventories everywhere else,” said Valérie Paquin, CREA Chair.

There were 5.1 months of inventory on a national basis at the end of April 2025, which is in line with the long-term average of five months. 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 above 6.4 months.

New supply rose by 3.1% month-over-month in May. Given a similar increase in sales activity, the national sales-to-new listings ratio was 47%, almost unchanged from 46.8% in April. The long-term average for the national sales-to-new listings ratio is 54.9%, with readings between 45% and 65% generally consistent with balanced housing market conditions.

At the end of May 2025, 201,880 properties were listed for sale on all Canadian MLS® Systems, up 13.2% from a year earlier but remaining about 5% below the long-term average of around 211,500 listings for the month.

“May saw an increased number of new listings hitting the market early in the month, followed by a higher number of transactions in the second half of the month, so overall more sellers and buyers compared to April,” said Valérie Paquin, CREA Chair. “It seems like this may carry over into June as well.”

There were 4.9 months of inventory nationally at the end of May 2025, near the long-term average of five months. 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 relatively unchanged (-0.2%) from April to May 2025. The pause follows three straight month-over-month declines of closer to 1%. The non-seasonally adjusted National Composite MLS® HPI was down 3.5% compared to May 2024.

Bottom Line

The First-Time Homebuyers GST Rebate on newly built homes took effect for purchase agreements dated on or after May 27. This may bring some additional buyers into sales offices, but it’ll be a while before those projects break ground and show up in the housing starts statistics. In the resale market, May saw the first signs of optimism in home sales in six months, but sales remain at the low end of seasonal norms. While trade war uncertainty still looms, average and benchmark prices have fallen to about 17% below their early 2022 peaks. The opportunity may have been too good for some buyers to pass up.

New listings picked up about 3% from April, while inventory held steady at nearly five months. With this excess supply in the market, average sale prices ticked up only slightly in May but remain flat over the past year, while the benchmark price declined marginally.

Regional differences remained significant. Home sales reversed course in Quebec City, but the average selling price increased, reaching a new high. Despite stronger sales in Toronto and Vancouver, these cities remained deep in buyer’s market territory.

While one good month of home sales doesn’t make a trend, there may be signs of cautious optimism for the resale market for those buyers who remain little affected by the ongoing trade war. The combination of lower prices, more inventory and less economic uncertainty should continue to entice more homebuyers back into the market this summer. This would be more likely if the Bank of Canada cuts rates again, which could well happen in July if the inflation readings improve, especially for core inflation.

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

Weak Canadian Labour Report in May Points Towards BoC Easing

General

Posted by: Liz Fraser

Labour Market Weakness Continued in May, Raising the Prospects of a Rate Cut at The Next BoC Meeting
Today’s Labour Force Survey for March was weaker than expected. Employment decreased by 33,000 (-0.2%) in March, the first decrease since January 2022. The decline in March followed little change in February and three consecutive months of growth in November, December and January, totalling 211,000 (+1.0%).

Today’s Labour Force Survey for May showed a marked adverse impact of tariffs on the Canadian economy. Employment held steady for the second consecutive month at a modest net job change of 8,800–below expectations.

Growth in full-time employment (+58,000; +0.3%) was offset by a decline in part-time work (-49,000; -1.3%). There has been virtually no employment growth since January, following substantial gains from October 2024 to January 2025 (+211,000; +1.0%).

The employment rate—the proportion of the population aged 15 and older—was unchanged at 60.8% in May, matching a recent low observed in October 2024. The employment rate had fallen for two consecutive months in March (-0.2 percentage points) and April 2025 (-0.1 percentage points).

The number of private sector employees rose by 61,000 (+0.4%) in May, the first increase since January. Public sector employment fell by 21,000 (-0.5%) in the month, following an increase in April that was partly attributable to the hiring of temporary workers for the federal election. Self-employment also fell (-30,000; -1.1%) in May, the first significant decrease since May 2023.

The unemployment rate increased 0.1 percentage points to 7.0% in May, the highest rate since September 2016 (excluding 2020 and 2021, during the pandemic). The uptick in May was the third consecutive monthly increase; since February, the unemployment rate has risen by 0.4 percentage points.

There were 1.6 million unemployed people in May, an increase of 13.8% (+191,000) from 12 months earlier. A smaller share of people who were unemployed in April transitioned into employment in May (22.6%), compared with one year earlier (24.0%) and compared with the pre-pandemic average for the same months in 2017, 2018 and 2019 (31.5%) (not seasonally adjusted). This indicates that people face greater difficulties finding work in the current labour market.

The average duration of unemployment has also been rising; unemployed people had spent an average of 21.8 weeks searching for work in May, up from 18.4 weeks in May 2024. Furthermore, nearly half (46.5%) of people unemployed in May 2025 had not worked in the previous 12 months or had never worked, up from 40.7% in May 2024 (not seasonally adjusted).

The layoff rate—representing the proportion of people who were employed in April but became unemployed in May as a result of a layoff—was 0.6%, unchanged from May 2024 (not seasonally adjusted).

Total hours worked were unchanged in May but were up 0.9% compared with 12 months earlier.

Average hourly wages among employees increased 3.4% (+$1.20 to $36.14) year-over-year in May, the same growth rate as in April (not seasonally adjusted).

Employment rose in wholesale and retail trade (+43,000; +1.5%) in May, driven by gains in wholesale trade. The increase partially offsets monthly declines in March and April 2025, totalling 55,000 (-1.8%).

In May, employment increased in information, culture and recreation (+19,000; +2.3%) and finance, insurance, real estate, rental and leasing (+12,000; +0.8%). Employment has increased in finance, insurance, real estate, rental and leasing since October 2024, with a net increase of 79,000 (+5.6%) over the period.

Meanwhile, public administration employment fell (-32,000; -2.5%), offsetting the increase in April that was related to temporary hiring for the federal election. Prior to these offsetting changes, there had been little change in public administration employment since July 2024.

Chart 5 Employment change by industry, May 2025

Employment also declined in May in transportation and warehousing (-16,000; -1.4%); accommodation and food services (-16,000; -1.4%), and business, building and other support services (-15,000; -2.1%).
Bottom Line

US nonfarm payroll data were released this morning, showing a still resilient economy with tariffs beginning to leave their mark. The US added 139,000 jobs in May, exceeding estimates, while the jobless rate remained at 4.2%. A decline in the labour force participation rate kept the lid on May’s US unemployment rate. But the number of unemployed rose for a fourth month, the longest such streak since 2009. Payrolls for the prior two months were revised downward, and wage gains outstripped inflation, helping to boost consumer spending.

A number of other labour market indicators show signs of increasing stress. Household employment dropped by a whopping 696k in May as the labour force shrank by 625k. This kept the unemployment rate relatively stable at 4.244%, but it is hardly a sign of labour market strength and resilience.

Manufacturing employment dropped by 8k, the sector’s worst performance since January. Construction employment growth also slowed to 4k from 7k in April, which is unusual during the Spring home-selling season. There were also stinging net job losses coming from temporary help firms, retail trade, and the Federal government. These sectors likely feel the combined strain from tariffs and DOGE-driven Federal spending cuts.

Nothing in the May employment report will push the Fed off the sidelines earlier than the markets expect. The steady unemployment rate and improvement in the three-month average of monthly job gains will keep the Fed firmly in the wait-and-see camp. With that said, cracks in the façade of labour market resilience are now starting to show, and the longer the tariff uncertainty and government spending cuts continue, the worse the labour market reports are bound to be. Signs of net job loss in manufacturing, temporary help, retail trade, and government are tell-tale signs of that damage.

On the Canadian side, tariffs have already had a substantial effect on the labour market. The jobless rate is at its highest since 2016, excluding the pandemic, as industries impacted by tariffs are laying off workers. The doubling of the tariff on steel and aluminum is especially deleterious. Trade-related sectors are struggling, while domestic-facing industries are partially offsetting the damage.

The May jobs report could have been worse, given that it was burdened by the loss of more than 30,000 election workers. Any increase is welcome, and the gains in private-sector and full-time jobs are encouraging. The glaring issue is that the manufacturing sector is under intense strain amid the deep trade uncertainty, and the overall job market continues to soften, highlighted by the grinding rise in the unemployment rate. In over two years, the jobless rate has risen by two percentage points, as we have gone from 2022 to 2023, when it was difficult to find workers, to today, when it is difficult to find work. While May’s mixed report doesn’t give a clear-cut signal to the BoC, the bigger trend of a rising jobless rate will keep them in easing mode through the year’s second half.

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

Bank of Canada Holds Rates Steady for Second Consecutive Meeting

General

Posted by: Liz Fraser

Bank of Canada Holds Rates Steady for the Second Consecutive Meeting–But Two More Rate Cuts Are Likely This Year
As expected, the Bank of Canada held its benchmark interest rate unchanged at 2.75% at today’s meeting, the second consecutive rate hold since the Bank cut overnight rates seven times in the past year. The governing council noted that the unpredictability of the magnitude and duration of tariffs posed downside risks to growth and lifted inflation expectations, warranting caution regarding the continuation of monetary easing.

The gap between the 2.75% overnight policy rate in Canada and the 4.25-4.50% policy rate in the US is historically wide. Another cause of uncertainty is the fiscal response to today’s economic challenges. If the Big Beautiful Bill, now under consideration in the Senate, survives, the US is slated to run unprecedented budget deficits. The Congressional Budget Office estimates it would add roughly US$4 trillion to the already burgeoning federal government’s red ink. This has caused a year-to-date rise in longer-term bond yields, steepening the yield curve.

Uncertainty remains high, and the US President just doubled the tariff on steel and aluminum to 50%, which could halt Canadian metals exports to the US. Last week’s release of the first quarter GDP report at 2.2% annualized growth was stronger than expected as exports and inventories surged before the tariffs. Final domestic demand in Canada was flat.  More recent data showed considerable weakness, especially in labour and housing markets. Consumer spending has also slowed sharply.

In today’s press conference opening comments, Governor Macklem said, “The extreme financial turmoil we saw in April has moderated, and stock markets have recovered their losses. However, the outcomes of the trade negotiations are highly uncertain. Tariffs are well above their levels at the beginning of 2025, and new trade actions are still being threatened. The recent further increases in US tariffs on steel and aluminum underline the unpredictability of US trade policy.”

“So far, the US economy has proven resilient. Imports were strong as businesses tried to get ahead of tariffs, and that pulled down first-quarter US GDP. But domestic demand remained relatively strong. Early indicators for the second quarter suggest a rebound in growth as imports fall back and domestic demand continues to expand.

The flip side of the strength in US imports was a surge in Canadian exports. This boosted first-quarter GDP growth in Canada, which came in at 2.2%, slightly stronger than the Bank had forecast.

The labour market has weakened, with job losses concentrated in trade-intensive sectors. The unemployment rate rose to 6.9% in April. So far, employment has held up across sectors less exposed to trade. However, businesses generally tell the central bank they plan to scale back hiring.

The pull forward in exports and inventory accumulation in the first quarter borrows economic strength from the future, so the second quarter is expected to be much weaker. Canadian families and businesses’ spending has shown some resilience in the face of US tariffs and heightened uncertainty. But they will likely remain cautious, suggesting domestic spending will remain subdued.

Inflation excluding taxes was 2.3% in April, slightly more substantial than the Bank had expected and up from 2.1% in March. The Bank’s preferred measures of core inflation and other measures of underlying inflation moved up in April. There is some unusual volatility in inflation, but these measures suggest underlying inflation could be firmer than we thought. Higher core inflation can be partly attributed to higher goods prices, including food, and may reflect the effects of trade disruption. Many businesses report higher costs for finding alternative suppliers and developing new markets. The Bank will be closely watching measures of underlying inflation to gauge how inflationary pressures are evolving.

The Bank is also monitoring inflation expectations closely. In April, we reported that consumers and businesses expected prices to rise due to tariffs, while longer-term inflation expectations remained well anchored. Recent surveys continue to show consumers bracing for higher prices, and many businesses say they intend to pass on tariff costs.

Governing Council will continue to assess the timing and strength of the downward pressure on inflation from a weaker economy and the upward pressure on inflation from higher costs.

At this decision, there was a consensus to hold the policy unchanged as we gain more information. The BoC also discussed the path ahead for the policy interest rate. Here, there was more diversity of views. On balance, members thought there could be a need for a reduction in the policy rate if the economy weakens in the face of continued US tariffs and uncertainty, and cost pressures on inflation are contained

Bottom Line 

We expect the Canadian economy to post a small negative reading (-0.5%) in both Q2 and Q3, bringing growth for the year to 1.2%, just one tick above the recently released OECD forecast for Canada. The next Governing Council decision date is July 30, which will give the  Bank time to assess the underlying momentum in inflation and the dampening effect of tariffs on economic activity.

If inflation slows over the next couple of months—we get two CPI releases and two jobs reports before the next meeting—and the economy slows in Q2 and Q3 as widely expected, the Bank will likely cut rates two more times this year, bringing the overnight rate down to 2.25%.

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

Q1 Canadian GDP Comes In Stronger Than Expected Owing to Tariffs

General

Posted by: Liz Fraser

Q1 GDP Growth Was Bolstered by Tariff Reaction As Residential Construction and Resale Activity Weakened Further
Statistics Canada released Q1 GDP data showing a stronger-than-expected 2.2% seasonally adjusted annual rate, a tick above the pace of the quarter before. Exports drove growth as companies in the United States rushed to stockpile Canadian products before U.S. President Donald Trump imposed tariffs.

Growth was headlined by strong exports and inventory accumulation, as firms attempted to front-run deliveries ahead of the United States’ tariffs. Domestic demand remained muted. The expansion exceeded even the most optimistic economist’s projection in a Bloomberg survey and was above the Bank of Canada’s forecast for a 1.8% increase.

Total exports rose 1.6% in the first quarter of 2025 after increasing 1.7% in the fourth quarter of 2024. In the context of looming tariffs from the United States, exports of passenger vehicles (+16.7%) and industrial machinery, equipment and parts (+12.0%) drove the overall export increase in the first quarter of 2025. Meanwhile, there were lower exports of crude oil and crude bitumen (-2.5%) and refined petroleum energy products (-11.1%).

Imports increased 1.1% in the first quarter, following a 0.6% rise in the previous quarter. Higher imports of industrial machinery equipment and parts (+7.4%) and passenger vehicles (+8.3%) led the overall increase. The threat of tariffs can be expected to influence trading patterns and incite importers to increase shipments before these tariffs are implemented to avoid additional costs. At the same time, travel imports fell 7.0% in the first quarter, as fewer Canadians travelled to the United States.

Preliminary data also suggests some continued momentum at the start of the second quarter, with output rising 0.1% in April, led by the mining, oil and gas, and finance industries. March’s growth of 0.1%—which matched expectations—was also driven by resource extraction sectors. Oil and gas extraction, construction, retail, transportation, and warehousing led the growth.

One of the sectors hardest hit by trade uncertainty appeared to be manufacturing. The sector contracted in March for the first time in three months, and advance data also showed that manufacturing led the decreases in April.

Early tracking for the second quarter, assuming flat readings for May and June, points towards modest growth.

Traders in overnight swaps pared expectations for a 25 basis point cut at the Bank of Canada’s interest rate decision next Wednesday, putting the odds at about 15%.

Some of the gains in growth will likely be temporary, masking the slowdown in household consumption and business investment, which will likely worsen in the coming months. The household saving rate slowed to its lowest level since the first quarter of last year as increases in disposable income were lower than nominal household consumption expenditures. Residential investment fell, and business investment in non-residential structures declined. Final domestic demand — representing total final consumption expenditures and investments in fixed capital — didn’t increase for the first time since the end of 2023.

Residential investment decreased 2.8% in the first quarter. This was driven by an 18.6% decline in ownership transfer costs, representing resale market activity. This was the most significant decline in ownership transfer costs since the first quarter of 2022 (-34.8%), when a string of interest rate increases curbed housing resales. Despite a decline in resale activity, new construction rose 1.7% in the first quarter of 2025, led by increased work put in place for apartments, primarily in Ontario. Renovations (+0.5%) also edged up in the first quarter.

The first-quarter expansion is also likely to be the country’s most robust quarterly growth this year. The Bank of Canada and economists expect the economy to either grind to a halt or contract starting in the second quarter. Expected fiscal stimulus from Prime Minister Mark Carney’s government and the central bank’s resumption of rates are likely to help offset some of the damage posed by Trump’s tariffs.

Bottom Line

This is the last critical data report before the Bank of Canada meets again on Wednesday. Their decision will be a close call, but they will likely remain on the sidelines, keeping their powder dry before recessionary pressures force them to cut the overnight policy rate by at least another quarter point.

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

Canadian headline inflation fell to 1.7% y/y in April owing to end of carbon tax and falling energy prices

General

Posted by: Liz Fraser

Today’s Inflation Report Poses a Conundrum for the Bank of Canada
The headline inflation report for April showed a marked slowdown in the Consumer Price Index (CPI), which rose a mere 1.7% year over year (y/y), down sharply from the 2.3% rise in March. The slowdown in April was driven by lower energy prices, which fell 12.7% following a 0.3% decline in March. Excluding energy, the CPI rose 2.9% in April, following a 2.5% increase in March.

Higher prices for travel tours (+6.7%) and food purchased from stores (+3.8%) moderated the slowdown in the CPI in April.

The CPI fell 0.1% in April, and it was down 0.2% on a seasonally adjusted monthly basis.

Gasoline led the decline in consumer energy prices, falling 18.1% y/y in April, following a 1.6% decline in March. The removal of the consumer carbon price tax mainly drove the price deceleration in April. Lower crude oil prices also contributed to the decline. Global oil demand decreased due to slowing international trade related to tariffs. In addition, supply from the Organization of the Petroleum Exporting Countries and its partners (OPEC+) increased.

Year over year, natural gas prices fell 14.1% in April after a 6.4% gain in March. The removal of the consumer carbon price contributed to the decline.

The dramatic decline in energy prices reflects the global economic slowdown caused by President Trump’s tariff mayhem.

The core inflation measures exceeded expectations last month, with the trimmed rate increasing to 3.1% y/y and the median rate rising to 3.2% y/y—above the target inflation range. The three-month moving average of the core rates rose to 3.4%, from 2.9% previously.

Food Prices Rose Sharply
In April, prices for food purchased from stores increased faster, increasing 3.8% year over year compared with 3.2% in March. Prices for food purchased from stores have grown faster than the all-items CPI for three consecutive months.

The most significant contributors to the year-over-year acceleration in April were fresh vegetables (+3.7%), fresh or frozen beef (+16.2 %), coffee and tea (+13.4 %), sugar and confectionery (+8.6%), and other food preparations (+3.2%).

Prices for food purchased from restaurants rose faster in April, increasing 3.6% yearly, following a 3.2% gain in March.

Excluding food and energy, this measure of core inflation rose a less troubling 2.6% y/y, up from 2.4%

CPI ex food & energy was less troubling at 2.6% y/y (up from 2.4%).

Another area reflecting trade war pressure is that vehicle prices rose 0.9% m/m, lifting the annual rate to almost 3%—these prices dipped 0.1% for all of 2024. Auto insurance also kicked in with an unhelpful 0.9% m/m rise, lifting the annual rate to 7.7%. In the meantime, shelter costs mostly moderated, partly due to the sharp fall in natural gas prices, but it was also helped by further moderation in mortgage interest costs (6.8% y/y vs 7.9%). However, rents perked back up slightly to 5.2% y/y, after slipping for most of the past year from a peak of nearly 9%.

Bottom Line

This report will reinforce the Bank of Canada’s cautious stance on easing to mitigate the impact of tariffs. Traders in overnight swaps lowered bets that the central bank will cut rates at its next meeting, putting the odds under 40% compared with nearly 70% before the release.

It will be a close call for the Bank of Canada, but even if they don’t cut rates in June, more rate cuts this year are likely.

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