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Economic Insights from Dr. Sherry Cooper - August 5 2025
August 5, 2025 | Posted by: Matthew J. Charlton

Most market participants did not expect the Bank of Canada to cut rates in late July.
Incoming economic data paint a somewhat stronger picture. Consumer sentiment remains relatively weak in the face of considerable tariff uncertainty, despite the record highs achieved by both the US and Canadian stock markets.
Business investment has slowed considerably, and layoffs have commenced in the hardest hit sectors (think autos, aluminum and steel).
Longer-term interest rates have risen considerably since March, and housing activity remains tepid in many regions of the country. The recently released June housing data show a continued rise in sales, a fall in new listings, and flat home prices. This could well signal a turnaround in housing as we approach 2026.
While Canada's employment report was not quite as strong as the rip-roaring headline 83,100 job gain would suggest, it nevertheless reflects the resiliency of the Canadian economy. Specifically, the pullback in the unemployment rate (down 0.1 ppt to 6.9%) is very encouraging. It's rare for the jobless rate to retreat, even for a month, during a recession. Moreover, the unemployment rate is arguably the most reliable data point in the monthly Labour Force Survey.
June's jobs report showed that public administration employment continues to grab an increasing share of the job market. Since 2016, public administration employment has increased by almost 40%, or more than twice the growth seen in the rest of the job market. Note that we use 'public admin' here, not the 'public sector', since the latter encompasses healthcare and education jobs as well. While the pandemic widened the gap, public administration has been outpacing job growth both before the disruption and after 2022.
Looking ahead, this source of job growth is likely to diminish, as federal hiring is expected to slow down. The Liberal platform targeted $13 billion in savings from 'government productivity' by FY28/29, and some of that is presumably going to happen sooner due to more immediate budget pressure. We are likely to see Canadian federal budget deficits of over $60 billion.
The latest inflation data for June torpedoed the Bank of Canada's potential easing on July 30. Headline CPI inflation posted a 1.9% year-over-year pace, up from 1.7% in May. More onerously, the core measures of inflation averaged 3.1% year-over-year gains, much too high for the Bank's liking.
Please note: The source of this article is from Sherry Cooper.