The Weekly Bottom Line
Our summary of recent economic events and what to expect in the weeks ahead.
Date Published: September 12, 2025
- Category:
- Canada
Canadian Highlights
- Odds are the Bank of Canada cuts rates next week after a pair of soft employment reports and a contraction in GDP.
- Canadian household wealth continues to rise, supporting the recent resiliency in consumer spending. However, elevated debt levels will likely keep a lid on near-term consumption growth.
- Prime Minister Mark Carney announced the first five major projects of the country’s nation-building project plan.
U.S. Highlights
- The preliminary benchmark revisions to the payrolls data through March 2025 suggest that job growth slowed earlier than previously believed, with 911k fewer jobs added in the year through March 2025.
- August’s consumer inflation report showed continued price pressures from tariffs.
- All eyes will now turn to the Federal Reserve meeting next week, with the FOMC expected to implement its first 25 basis-point cut of the year.
A quiet week for domestic data gave some time for markets to assess economic conditions before next week’s Bank of Canada (BoC) rate decision. In recent weeks, softer economic data led by a further deterioration in Canada’s job market has shifted the tides toward a rate cut on Sept. 17th – markets are pricing a 90% probability of a 25 bps cut, up from around 30% during the first half of August (Chart 1).
We’ve long argued that the BoC has reason to cut rates this year as ongoing trade uncertainty and loosening labour markets work to cool residual inflation pressures. Next week’s CPI update could solidify the BoC’s rate decision, if waning inflation momentum, especially in core measures, shows through. However, an upside surprise to inflation readings may keep the BoC to the sidelines. Overall, recent data flows have more or less tracked the Bank’s forecast scenario consistent with a rising need for a further reduction in the policy rate. Whatever happens next week, we believe the BoC’s cutting cycle is nearing the end, with 2.25% policy rate–the bottom end of their neutral rate range–being the target.
It’s worth pointing out that the Canadian consumer has shown some resiliency in recent months. Second-quarter consumption growth exceeded expectations despite a trade-driven economic contraction (Chart 2). National balance sheet data released this week showed that stronger balance sheets may be underpinning the surge in spending as household wealth trends higher on the back of stronger financial markets. It is encouraging to see a slight improvement in the financial position of Canadian households, but debt levels and debt-servicing costs remain elevated. High debt burdens and a weaker labour market are likely to see households keep spending in check over coming quarters, offering only modest support to growth in the second half of 2025.
As the economy faces headwinds, Prime Minister Mark Carney unveiled the first phase of the country’s nation-building projects. The first five include: LNG Canada Phase 2 in BC; the Darlington New Nuclear Project in Ontario; the Contrecoeur port expansion in Quebec; and two mine expansion projects in BC and Saskatchewan. The combined value of the projects tallies around $25 billion, excluding the LNG Canada project which has yet to reach a final investment decision. Another six projects in the early stages of planning have also been identified as part of a next wave under consideration.
The timing of project outlays is still highly uncertain and will likely span over several years, potentially providing a mild tailwind for Canada’s GDP growth over the medium-term. More importantly, this nation-building agenda is part of the government’s broader plan of enhancing long-term economic and productivity growth through increased defense spending, infrastructure development, reduced interprovincial trade barriers, and comprehensive spending and regulatory reviews.
Despite there only being a handful of economic data releases this week, each was influential to the economic outlook. This included the preliminary benchmark revision for employment, as well as the consumer and producer inflation reports for August. While the data was somewhat concerning, financial markets largely took it in-stride as expectations for next week’s Federal Reserve decision remained in-tact. The S&P 500 rose 1.6% on the week, with U.S. Treasury yields seeing little change as of the time of writing.
The preliminary revision to non-farm payrolls released on Tuesday will not be incorporated into the official data until the January 2026 release, but the snapshot it provided was concerning. Estimates of employment for the year through to March 2025 were revised lower by 911k jobs, which would be the largest revision since 2009 (Chart 1). This comes on the heels of last week’s employment report for August, which showed only 22k jobs added during the month and the unemployment rate rising to 4.3%. The emerging shift away from full employment in the economy is likely to be a top priority during Federal Reserve deliberations at next week’s meeting.
However, they will also have to assess the emerging risks to the other side of their dual mandate related to price stability, with the data we received this week on inflation also raising concerns. Those with dovish predispositions may point to the surprise decline in the producer price index (PPI) in August as evidence that price pressures are under control. However, the rolling 12-month volatility of the PPI final demand index excluding food & energy has hit its highest level since mid-2022, likely reflecting the impact that constant trade policy changes have had on firm pricing decisions. Single-month changes in the PPI therefore need to be taken with a grain of salt and illustrate the challenges the Fed faces in assessing price developments in 2025.
On the consumer inflation front, we saw further upward pressure on goods prices in August, while services inflation also remained elevated. With the three-month annualized percent change in core CPI accelerating to 3.6% in August (Chart 2), the Federal Reserve’s response function would typically be to consider raising interest rates in such an environment, all else equal. However, given the temporary nature of tariff-induced inflation and the flagging labor market, the full balance of risks will need to be taken into consideration. Amid this backdrop, in conjunction with the sustained stability in consumer inflation expectations, we expect the Fed to implement its first 25 basis point cut of the year next week.
Further interest rate reductions are expected to be implemented gradually through the end of the year, to provide support to the economy without fanning the flames of inflation anew. This is expected to be a delicate maneuver by the Federal Reserve, and one that will be sensitive to the balance of incoming economic data.
Disclaimer
This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.
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