The Weekly Bottom Line
Our summary of recent economic events and what to expect in the weeks ahead.
Date Published: October 3, 2025
- Category:
- Canada
Canadian Highlights
- Canadian equity markets continued their ascent this week, although bond yields and oil prices sent a somewhat weaker signal about economic growth prospects.
- Canadian job markets have softened, which should downwardly pressure consumption moving forward. The Bank of Canada will be no doubt be closely watching the September Labour Force Survey report out next week.
- Markets are assigning a roughly 60% chance of a BoC cut later this month. Given the weak economic backdrop and diminished inflation risks, we think the chance is much higher.
U.S. Highlights
- The U.S. government has shut down all “non-essential” services this week as Congress failed to pass a bill to fund government spending.
- In the absence of payrolls data, the ADP report took the center stage, and showed that private payrolls declined by 32,000 in September. August’s JOLTS report showed that businesses remained in low hire, low fire mode.
- The ISM manufacturing index rose slightly in September but remained in contractionary territory. Its services counterpart dropped sharply, narrowly avoiding slipping into contractionary territory.
The mood in Canadian financial markets was somewhat sour this week, except that the unrelenting bull run in equities continued. This is despite the U.S. government shutdown, and a fresh set of U.S. tariffs placed on lumber (10%) and kitchen cabinets, bathroom vanities, and upholstered furniture (25% each). Tariffs on the latter categories are unlikely to massively dent the Canadian economy, although if stacked on to existing duties, the lumber tariffs would yield a 45% import tax on Canadian lumber. President Trump has also pledged tariffs on branded pharmaceuticals and heavy trucks at a later time. Notably, PM Carney will meet with President Trump next week to discuss trade and other important issues.
Developments in other financial markets signaled some more concern about the economic outlook. The Canadian 10-year yield was down a few bps this week (as of writing), following its U.S. counterpart lower amid the government shutdown. Meanwhile, oil prices traded near multi-month lows, weighed down by both demand and supply worries.
There is reason to be apprehensive about Canada’s economic backdrop, with troubling signs aplenty in the jobs market (Chart 1). There were no major data releases this week (although preliminary housing data signalled cooling sales growth in key markets last month). However, September’s Labour Force Survey (LFS) data is on tap for next week. So far, the LFS has painted an ugly picture of the current jobs market, with a cumulative 100k jobs lost in July and August. Part of this story is tied to demographics and labour supply, with rapidly slowing population growth reducing the labour force so far in the third quarter. And there’s a good chance this dynamic shows itself again next week. However, labour demand is also soft - evidenced by falling job vacancies - while wage growth is slowing and the unemployment rate is on the rise.
One way a slowing jobs market will impact the economy is through household spending (Chart 2). Consumer spending was surprisingly resilient in the first half of 2025, which we chalk up to past rate cuts, a rise in housing market activity, and travelers choosing to stay (and spend) in Canada instead of heading south of the border. However, we question the durability of this spending strength, given Canada’s slowing population growth and, crucially, it’s weakening jobs market. As such, we think Canadian consumption is likely to post sub-trend growth performances moving forward (see report).
Policymakers are certainly aware of the downside risks to Canada’s economic growth. Minutes from the Bank of Canada’s deliberations ahead of their September rate cut were released this week. And, they were dotted with dovish statements, including the observation that upward momentum in core inflation had diminished, the labour market had softened, and most counter-tariffs on U.S. products had been removed (reducing Canadian inflation risk). As of now, markets see a 60% chance of a follow-up rate cut by the BoC this month. However, we think the BoC will pull the trigger given the weak economic backdrop.
On October 1st, the U.S. government shut down all “non-essential” services, as Congress failed to pass a bill necessary to fund government in the current fiscal year. Financial markets have shrugged off the shutdown so far, with equities ending the week higher, bond yields declining, and the U.S. dollar weakening only slightly. In past shutdowns in 2013 and 2018, equities and the USD declined modestly and recovered quickly, so the reaction this time is even more muted.
If this shutdown is brief, the markets may be right to discount it. Most lost output in previous shutdowns was eventually recovered. Studies show shutdowns reduce annualized quarterly real GDP growth by up to 0.1 percentage points for each week. However, negative effects increase non-linearly the longer the shutdown lasts as disruptions accumulate (report).
The lack of updated official economic data is another casualty of the shutdown. September’s payrolls release has been postponed. A prolonged shutdown may delay other key indicators like the Consumer Price Index (CPI). A lack of official data complicates decision-making for the Fed. For now, the Fed will have to rely on private and internal data sources. Earlier this week, Chicago Fed President Goolsbee (who is a voting member of the FOMC) echoed that, but also acknowledged that it worries him “that we wouldn’t be getting official statistics at exactly a moment when we’re trying to figure out is the economy in transition.”
Without official payrolls data, employment surveys—such as ADP and JOLTS—filled the gap. The ADP report showed continued weakness in job growth in September, with private payrolls declining by 32,000. Though ADP data can be volatile, recent trends show greater alignment with payroll figures through 2025, especially on a three-month moving average (Chart 1). The August JOLTS report, released before the shutdown, also showed a hiring drought, with job openings below the number of unemployed for a second consecutive month (Chart 2). Although job opportunities were scarce, layoffs have remained subdued. Employers seem to be in “low hire, low fire” mode, supporting stability in the unemployment rate and helping to cushion consumer spending for now.
In terms of economic growth, ISM indexes pointed to slowing momentum in September, with businesses increasingly citing the growing impact of tariffs on their bottom lines. The ISM manufacturing index edged higher, but remained in contractionary territory, with only 5 out of 18 industries reporting growth. Activity moderated in the services sector, with the ISM non-manufacturing index declining to 50.0 from 52.0, narrowly avoiding slipping into contraction. Details were disappointing: new orders and business activity moderated, prices rose and the employment subcomponent remained in contractionary territory. While limited, this week’s data continues to support the case for additional monetary stimulus from the Fed, with another rate cut in October being nearly priced in by markets.
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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