The Bank of Canada followed through on analyst expectations by opting to maintain the overnight rate at 2.75% this week, citing stubborn inflationary concerns and surprising job growth data. Market sentiment on the next rate reduction is mixed around the fourth quarter, with some analysts wondering the BoC will continue holding interest rates for the remainder of the year. As of July 30, the U.S. Federal Reserve has held interest rates at 4.25% to 4.50% for the fifth consecutive time since December 2024, citing inflation remains above the 2% target. Markets continue to anticipate the soonest potential rate reduction during September’s meeting.
Both central banks have signaled their forward outlook depends on the latest data on key factors such as core inflationary measures, the labor market, business confidence, and household spending.
The Bank of Canada Maintains Holding Pattern
Canada’s inflation has continued to moderate. CPI in June rose 1.9% y/y after May’s y/y figure of 1.7%. Food and shelter costs however continue to be stubborn, both rising 2.8% and 2.9% m/m in June (3.4% and 3.0% respectively in May) which likely factored into the decision to hold the overnight rate at 2.75%.
Macroeconomic indicators are mixed; real GDP expanded at an annualized 2.2% in Q1 2025 which surprised markets amid tariff concerns and uncertainty. While headline CPI remains below 2%, core measures of inflation remain stubborn as CPI excluding energy was reported at 2.7% y/y.
Job growth remains sluggish; while employment figures grew by 83,000 in June, a vast majority of this growth was in part-time work (+70,000 jobs) and long-term unemployment figures remain high. In June, it was reported that 21.8% of unemployed people had been searching for work for 27 weeks or more.
Federal Reserve Points to Inflation and Jobs
Markets have been in a constant state of flux throughout 2025; the latest Consumer Price Index (CPI) figures show an increase of 0.3% month-over-month (m/m) on a seasonally adjusted basis in June, following a 0.1% rise in May. Key contributors include shelter costs (increased by 0.2% in June) and energy, which increased 0.9% percent. Year over year CPI for all items increased by 2.7%, edging closer to the upper end of the US Fed’s 1% to 3% target range.
Employment figures also show mixed signs. The US Bureau of Labour Statistics’ (BLS) Establishment Survey Non-farm payroll reported strong figures for June (147,000), with unemployment at 4.1% (remaining relatively unchanged since May 2024). BLS Household Survey reported an increase in long-term unemployed category totaling 1.6 million in June, and 6 million people were recorded as those not in the labor force who currently want a job. The latter were not counted as unemployed by BLS based on whether they responded to the survey or were actively looking for a job in the preceding four weeks. Number of people recorded working part time for economic reasons changed little at 4.5 million in June. These are workers described as those that preferred full-time work but had their hours reduced or could not find full-time work.
Outlook for Construction
The construction sector continues to be stable across Canada and the US while markets grapple with a positive yet muted growth outlook.
Across the US, total spending in construction fell 0.3% m/m in May 2025 (seasonally adjusted annual rate), posted at USD $2,1382.2 billion. More than 75% of construction spending was on private construction. Year to date, construction spending amounted to USD $841.5 billion, down 2.1% compared to the same period in 2024.
Building permits issued for private housing reported at 1.39 million (seasonally adjusted), down 4.4% from a year prior. Private housing starts were seasonally adjusted at 1.32 million, down 0.5% year-over-year.
Employment in construction in the US is projected to have grown to 8.3 million in June, up approximately 15,000 workers from May and around 1.4% higher compared to the same period last year. The unemployment rate in construction fell to 3.4%, one of the lowest among all industries.
Canada had a similar second quarter, with total investment in construction steady at 21.8 billion in May 2025 (-2.2% m/m) while the value of building permits issued for residential and non-residential construction reached $13 billion, up 12% m/m and 8% compared to May 2024.
Construction employment also continues strengthening, with 1.69 million people employed in June. This is an increase of +42,600 compared to May, leading to the construction unemployment rate falling to 5.3% in June from 6.5% in May.
The construction sector in both countries continue to drive growth as the need for housing and infrastructure remains high. BTY monitors macroeconomic observations and outlooks to advise clients and optimize their projects to maximize value for money. Reach out to learn more about how our market insights can help you control costs and risks on your projects.
