The Bank of Canada (BoC) opted to reduce the overnight rate by 25bps at its meeting on September 17, after outlook waned on lower-than-expected Q2 GDP and Labour Force data. The US Federal Reserve also reduced their target interest rate to 4% - 4.25%.
The economy has slowed across Canada as tariff-related impacts are felt. Job prospects continue to dwindle as companies put off hiring amidst continued market uncertainty. Youth unemployment continues its alarming climb, reaching an average of 17.9% between May and August. Numerous goods producing industries are under threat as export figures dwindle, and core measures of inflation remain stubborn.
A similar situation has been observed in the US as little job growth has been observed since April. Unemployment levels have risen, and labor force participation has fallen. A new revision to the non-farm payroll has seen a decline of 911,000 jobs in March 2025 versus prior estimates. Inflation remains elevated as tariffs increase the price of imported goods that Americans purchase. Industries such as tourism and agriculture face new challenges with fewer visitors to the US and fewer trading partners impacting businesses.
The Bank of Canada Responds to a Summer Slowdown
Macroeconomic conditions across the country have shifted as tariffs reduce exports and threaten job security in goods-producing regions. Domestic consumption has risen slightly to offset declines, but sluggish outlook for jobs is a systemic risk that has numerous knock-on effects.
Canada’s GDP contracted by 0.1% in June as goods-producing industries declined for three months straight. August’s labour figures faired poorly, with a decline of 66,000 jobs and the unemployment rate rising to 7.1%. Inflation rose year-over-year to 1.9% in August, up from a 1.7% figure in July. Consumer spending increased slightly in Q2 (+1.1%) compared to Q1 as demand for goods and services remains steady.
Construction employment figures grew to an estimated 1.636 million in August after dropping to 1.619 million in July. Overall employment is down slightly from January’s 1.651 million, highlighting the continued need to train and employ workers as skilled members continue to age out of the profession.
Today’s rate reduction could help revitalize business activity across the country. Lower borrowing costs makes investment more attractive and can incentivize businesses to proceed with planned projects and resume hiring. For the construction sector, lower rates help incentivize home buyers, improving feasibility for market housing development.
US Federal Reserve Moves Amid Sluggish Labor Market
US trade policy has caused imports and exports to fall from previous highs in March and April. Job statistics continue their downward trend, highlighting gaps in the domestic labor market.
For example, labor figures in August grew only +22,000, with little change in overall job growth since April. Overall unemployment grew to 4.3%, the highest figure recorded in 2025 thus far. A second estimate of Real GDP showed strong gains of +3.3% in Q2, after a sluggish Q1 (-0.5%). This may primarily be a result of the drastic slowdown of imports (a subtraction from the GDP calculation). After a high of $420 billion in imports in March, the three-month moving average fell to $349.7 billion in July. CPI was recorded at 2.7% and 2.9% year-over-year in July and August respectively.
After holding rates for nearly 10 months, the recent rate change aims at stabilizing a declining labor market. Incentivizing business activity is critical to combating excess supply in the economy, especially if imports and exports continue decelerating. While much of the US’ trade with Canada (its closest trading partner) continues under CUSMA, import prices for key construction inputs such as steel, aluminum, and softwood lumber remain elevated for US businesses.
Outlook for Construction
Despite the slower pace of growth seen thus far, the construction sector in Canada and the US remains occupied with delivering new housing and infrastructure updates across a wide range of regions. With both country’s central banks reducing interest rates, there’s potential for a slight uptick in activity, especially if rates continue to be adjusted downward in the coming months.
Canada’s construction industry continues to support workers across the country, as the sector’s GDP rose 0.3% in June, growing for the third time in four months. Residential building construction grew +1.6% driven by increased activity in the new construction of single-detached homes as well as in home alterations and improvements. Repair construction (+0.3%) also contributed to the increase in June, rising for the second consecutive month.
In addition, the Federal government announced more details about the Build Canada Homes initiative, which has $13 billion earmarked to deliver more housing across the country. The first major development project focuses on creating 4,000 modular homes at six initial sites (Ottawa, Edmonton, Winnipeg, Toronto, Longueuil, Que., and Dartmouth, N.S.) across the country with capacity to scale up to 45,000.
The government also recently announced several projects that will be the first to be reviewed by the newly formed Major Projects Office, which aims to reduce review times to a maximum of two years for infrastructure mandates of significant importance to Canada. The projects include LNG Canada Phase 2, Darlington New Nuclear Project, Contrecœur Terminal Container Project, McIlvenna Bay Foran Copper Mine Project, and the Red Chris Mine expansion. Together, the Major Projects Office and Build Canada Homes has the potential to sustain continued activity in the residential and ICI sectors across Canada.
In the US, seasonally adjusted housing starts grew by 5.2% in June year-over-year, while construction spending was nearly unchanged (-0.1%). The workforce dipped slightly in August to 8.295 million workers, compared to July’s 8.302 million, but August figures were still up 0.7% year-over-year. The sector also boasts a low 3.2% unemployment rate (unchanged vs. July).
In August, construction input prices rose 0.2% month to month, and overall costs for residential and non-residential construction across the US have grown 2.3% and 2.6% respectively compared to a year ago. Falling gas prices have helped counter the effect somewhat, but US builders continue to face price increases due to tariffs.
As market conditions change, the construction landscape has evolved. While challenges persist, the construction sector provides stability to Canada and the US’ economies. In times of uncertainty and risk, robust contingency planning and risk mitigation strategies continue to be essential for owners, lenders, developers, and construction teams. Connect with BTY’s experts across Canada and the US to leverage their insights on your next project.
