Other economic indicators

Growth remains solid despite risks

The latest economic estimates still point to solid US real GDP growth in the third quarter at around +3.0%, according to the Federal Reserve Bank of Atlanta. Growth in consumer spending is said to have risen by 2.1% during the quarter, while investment jumped by 6.0%. Impressive results if true, particularly after the strong growth of the second quarter and the significant slowdown in job creation.

The US Federal Reserve now has to juggle stagnant inflation and a slowing labour market. In July, headline inflation held steady at June's level of 2.7%, while core inflation (excluding energy and food) rose from 2.9% in June to 3.1% in July. At the same time, the labour market showed further signs of weakening. The slowdown in employment should be enough for the Federal Reserve to lower the federal funds rate in the coming weeks, even with inflation above target. 

Oil prices rise tepidly

Economic uncertainty is still very much felt on the oil market, and is likely to persist for the rest of the year. Even so, oil benchmarks began to rise slightly at the end of the summer. However, gains will remain limited by forecasts of rising global supply and weakening demand, particularly from Asia. 

Despite rather weak prices, OPEC members have announced new production increases that will hit the markets as early as October 2025. The organization is thus attempting to regain market share in the face of increased competition from the US and Canada.

Market conditions still seem to favour WTI. While Brent was trading at US$68, at the same time, WTI is nearing US$66, further narrowing the gap.

The loonie is still flying low

The Canadian dollar began a gentle descent over the summer. The loonie was trading around 72 US cents in early September, down from 74 cents in June.

The Canadian dollar's most recent slide against the greenback accelerated in the wake of less positive statements about Canada-US relations and their respective economies. The spread between US Federal Reserve and Bank of Canada interest rates held firm, limiting the loonie's value against the greenback over the summer. The Canadian dollar should remain between US$0.72 and US$0.74, but the risk of it slipping closer to US$0.70 remains significant, particularly if oil continues its downward slope and negotiations with Washington turns sour.

Will the Bank of Canada resume rate cuts?

The last change to the Bank of Canada's monetary policy was a 25 basis point cut in March 2025. Since then, the Board of Governors of Canada's central bank has opted for the status quo. The effects of existing tariffs on inflation have so far proved limited. Since the last announcement, many of Canada's tariffs on US products have been repealed, which should also help to contain the inflationary effect these tariffs could have.

Inflation is under control in Canada, and at 2.75%, the policy rate is in the middle of the estimated neutral range (i.e. neither stimulating nor inhibiting growth). The economic slowdown seems to be spreading a little further, and the decline in employment in July and August, together with a general slowdown in confidence in the country, could motivate the Central Bank to resume easing credit conditions in the country.

The key interest rate has been cut by a cumulative 225 points over the past 12 months. Effective rates for households have since fallen by 130 points, and those for businesses by 170 points. 

Momentum slowly returns nationwide

Activity continues to slowly pick up on the residential resale market, with the number of transactions recorded in July continuing the upward trend begun in May. Average home prices (weighted) continued to fall, but only modestly, while the MLS home price index remained stable.

30-year amortization mortgages have remained popular with Canadian households since the policy came into effect in mid-December. This measure allows homeowners to lower their payments, leaving them with more to spend elsewhere

Confidence falls back in August

The optimism of Canadian businesses, which had been improving since May, has recently reversed course. CFIB's business confidence index for the year ahead fell 3.7 points to 47.8 in August. The index thus fell back below the neutral 50 mark, which it had surpassed in July.

An indicator of 50 means that as many business leaders expect the business environment to deteriorate as to improve over the 12-month period covered. 

The index thus seems to confirm that business leaders are returning to pessimism, probably in part as a reaction to less favorable announcements regarding North American relations. It remains to be seen whether this trend will continue over the coming months, given the persistently high level of uncertainty hanging over the heads of Canadian businesses.