Canada’s labour market is deteriorating, with roughly 100,000 jobs lost over the past 2 months. Employment fell by 65,500 in August – significantly weaker than expected – marking a second consecutive month of decline and the steepest drop since the pandemic. The unemployment rate climbed to 7.1 per cent, its highest level since May 2016 outside of the pandemic period. At the same time, the employment rate slipped to 60.5 per cent, its lowest level since the late 1990s, a further indication of mounting slack in the labour market.
While economic activity is no longer deteriorating, it is not rebounding strongly either, with sectors affected by US tariffs likely to remain under pressure. Job losses last month were concentrated in the manufacturing sector, as well as transportation and warehousing.
The Bank of Canada must weigh growing slack in the economy – evidenced by the Q2 contraction and recent job losses – against core inflation that remains stubbornly above target. Since its June meeting, the Bank has made clear that inflation, rather than rising slack, is its focus.
A September rate cut may still hinge on the next CPI release, scheduled just a day before the policy meeting. Any sign of easing inflation would strengthen the case for a cut, but an upside surprise could prompt the Bank to hold off.
How should mortgage investors view these developments? A rate cut will not necessarily affect private mortgage rates, but it could help reduce some of the uncertainty that has kept homebuyers on the sidelines in recent months.
Investors should also monitor the unemployment rate for the core 25–54 age group, a key driver of mortgage defaults. This rate currently sits at 6.1 per cent—up 0.6 percentage points from a year ago but down 0.3 points from the prior month. Keeping an eye on these trends will help investors filter the market noise.
Housing Affordability Watch
CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis
As part of its broader approach to housing affordability, Australia helps first-time buyers enter the market faster through the Home Guarantee Scheme, with programs tailored to different types of buyers. Over a two-part series, we break down the scheme’s key programs, potential market implications and whether a similar approach could work in Canada.
Read part one of our analysis in the latest Housing Affordability Watch: Australia’s Home Guarantee Scheme – Part One: Supporting First-Time Buyers
Independent Opinion
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