The US Federal Reserve finished off the 2025 calendar year with a third consecutive rate reduction, bringing rates to 3.5% - 3.75%. The Bank of Canada decided to hold rates in December after cutting rates a total of four times in 2025, with the Overnight Rate presently at 2.25%.
The US Federal Reserve finished off the 2025 calendar year with a third consecutive rate reduction, bringing rates to 3.5% – 3.75%. The decision was challenging after a recent six-week government shutdown and a lack of macroeconomic data for September/October. With both inflation and unemployment on the rise and less data to make decisions, the Federal Reserve has opted to tread cautiously in 2026.
The Bank of Canada decided to hold rates in December after cutting rates a total of four times in 2025, with the Overnight Rate presently at 2.25%. This decision has been tied to stronger-than-expected GDP results in the third quarter as well as signs of employment metrics improving in recent months and inflation having been tied closely to the 2% target for more than a year.
Latest Trends Heading Into 2026
Economic trends for the US are cloudy due to the recent shutdown of government as well as October’s data publications being effectively cancelled. Latest available data shows nonfarm payroll employment up 119,000 in September and unemployment at 4.4%. Both metrics are relatively unchanged since April however, highlighting a stagnant labor market. Latest inflation figures were reported at 3.0% in September before seasonal adjustment.
Conversely, macroeconomic figures in Canada are trending positively, led by surprising third-quarter Real GDP growth (+0.6%) after a -0.5% dip in Q2. Canada’s trade balance is beginning to adapt as imports dip and exports rise. Markets remain cautious heading into 2026 however, as government capital spending has offset flat business investment. Inflation also dipped in October, reported at 2.2% YoY after September’s figure of 2.4% YoY. This was the result of continuing declines in gasoline prices and a slowdown of grocery price inflation.
Canada’s employment continued to stabilize in November with job gains (+54,000; +0.3%) and a substantial decrease (-0.4%) to the overall unemployment rate (6.5%). Although this growth was mostly driven by part-time employment, positive gains were made in youth aged 15 to 24; the group with the highest unemployment rate. The healthcare and social assistance sector also saw the highest increase (+46,000; +1.6%) while wholesale and retail trade fell (-34,000; -1.1%).
Looking Ahead in Construction
Construction metrics for the United States are stalled due to the recent government shutdown, but the latest observed trends are expected to continue into 2026. Privately-owned residential construction has slowed down in August 2025, with building permits down 2.3% MoM (1.33 million) and housing starts down 8.5% (1.307 million). Private sector spending grew slightly (+0.3% MoM) to $1.65 trillion while public sector spend was unchanged at $517 billion in August.
Non-residential construction spending was led by the Manufacturing, Power, and Highway and Streets sectors ($220 billion, $155 billion, and $143 billion respectively), and a substantial portion of construction activity in the US has revolved around the AI and Data Center sector. For example, some estimates suggest that 80% of the growth in final private domestic demand in the first half of 2025 came from data centers and high-tech-related spending alone. While a boon for GDP statistics, some analysts are unsure if this concentration of economic activity can be sustained in 2026 and beyond.
In Canada, residential construction figures are trending down but remain near 2024 levels overall. Across Canada, the total monthly standalone seasonally adjusted rate of housing starts in October was 232,765 units compared to 279,174 units in September, a decline of 17%. YTD data for housing starts in centres with a population of 10,000 or more was reported at 197,207 for January to October 2025, an increase of 5% compared to the same period in 2024. Housing starts growth during this period remained strong in Quebec (+32%), Nova Scotia (+26%), Saskatchewan (+51%), and Alberta (+20%) while Ontario (-19%) and BC (-4%) lagged behind.
Non-residential investment in building construction increased slightly to reach $6.8 billion in September, $2.1 billion of which was concentrated in institutional investment. Building permit activity fared well in September; seasonally adjusted permit values for residential and non-residential development grew to $7.27 billion (+4.8% MoM) and $4.45 billion (+4.0% MoM) respectively.
Unadjusted employment figures for construction workers continued to decline, reaching 1.647 million and 1.630 million in October and November respectively as workforce trends follow the seasonal declines often observed in the winter months. Construction sector unemployment reached their lowest level in 2025 at only 4.1% however in November, showing that labour is still needed across the sector.
Outlook for the construction sector looks stable but cautious heading into 2026 as worker demand remains strong, demand for housing continues, and investment in infrastructure by the public sector helps drive economic growth.
A deep understanding of cost, risk, and scheduling will be essential for maximizing returns in the for owners, lenders, developers, and construction teams as the market grapples with continuing challenges next year. Connect with BTY’s experts across Canada and the US to leverage our local insights on your next project.
