Canada Highlights (or Lowlights)
The latest releases from Statistics Canada provided further confirmation that our economy is slowing.
Last Thursday Stats Can’s survey of employment, payrolls and hours (SEPH), confirmed that our economy shed 32,500 jobs in June.
The SEPH data are considered more reliable indicators of employment trends than our labour-force survey (LFS). That is significant because the June LFS, released on July 11, indicated that our economy added 83,000 jobs in June. That surprisingly strong result did not jive with other data, and last week’s SEPH confirmed that it was a spurious indicator.
On Friday we learned that our GDP contracted by 1.6% in Q2, a sharp drop from our 2% growth rate in Q1. The decline was primarily attributed to a 27% quarter-over-quarter decrease in exports.
Our Q2 GDP result would have been even worse were it not for an unexpected surge in consumer spending, which increased by 4.5% year-over-year.
Going forward, consumer spending appears set to cool in the face of declining wage growth, additional job losses, and deteriorating consumer confidence.
US Highlights
Last week the US Bureau of Economic Analysis estimated that the US economy grew by 3.3% in Q2 on an annualized basis.
But while investors were celebrating that result, economist David Rosenberg was pointing out that “declining import volumes (imports are a subtraction from the headline) were the sole booster because absent that, real GDP would have shrunk at a -2.1% annual rate!”
So maybe Americans should keep the champagne corked for now.
Speaking of champagne, last Friday the de minimis exemption, which is a longstanding import policy that lets retailers ship packages worth up to $800 to US customers duty-free, was suspended by an executive order from President Trump.
As per morningbrew.com, “de minimis shipments make up more than 90% of cargo entering the US by volume’, which means that pretty much anything you [Americans] order could cost you at least 10% more than it does now.”
On Friday we learned that the US core Personal Consumption Expenditures (PCE) Price Index increased from 2.6% in June to 2.9% in July on an annualized basis.
Core PCE is the Fed’s preferred inflation gauge. It has now risen steadily for four consecutive months and, so far, without much contributing impact from tariffs.
The Latest on Mortgage Rates
Government of Canada (GoC) bond yields were range bound for most of last week until Stats Can released our GDP figures on Friday.
Those yields subsequently dropped, but only by a little, and fixed mortgage rates held steady.
The bond market’s muted reaction bolstered my belief that bond yields in general still have an upward bias.
Their next catalyst will likely come this Friday from the release of the US and Canadian employment data for August.
Sidenote: It will be interesting to see whether the bond market’s reaction is blunted by the inaccuracy of recent initial employment estimates. (To wit, the last six US employment reports have all been subsequently revised downwards.)
Variable-rate discounts held steady last week.
On July 30, Bank of Canada (BoC) Governor Macklem stated that the Bank would be ready to enact additional rates cuts if tariff-related effects on growth are more significant than forecast and if “the upward pressure from tariffs and trade disruption [on inflation] is contained”.
Since then, we have learned that our best month for employment growth in 2025 was a mirage, and Prime Minister Carney has removed most of the counter tariffs he had imposed on US imports.
The combination of those factors has, understandably, fueled speculation that the BoC may cut at its next meeting on September 17. Bond-market investors have raised those odds from 35% to 55%.
Insider’s Tip for Borrowers
Do you have an existing mortgage that will be up for renewal soon? If so, have you passed your lender’s laziness test?
We’re in the middle of the largest renewal wave in our history. Forewarned is forearmed.
Mortgage Selection Advice
My mortgage selection advice is unchanged from last week.
Fixed rates have returned to their long-term average levels. The term premium, which is the additional cost that borrowers must pay to lock in for longer terms, is slowly being restored as our bond-yield curve continues to normalize.
Right now, the best available three- and five-year fixed rates are both good options. If the rates are roughly equal, I think five-year fixed-rate terms offer slightly better value.
I continue to believe that today’s variable mortgage rates will likely produce the lowest borrowing cost over their full term, even now that the consensus believes additional BoC rate cuts will take longer than expected.
Anyone choosing a variable rate should do so only if they can live with its inherent potential for volatility. Borrowers must also have the financial capacity to withstand higher costs (and, in some cases, higher payments) should my forecast prove incorrect.
Three Posts Every New Visitor to My Blog Should Read
- Should Canadians Choose a Fixed or Variable Mortgage Rate During a Trade War?
This post provides a detailed comparison of the pros and cons of fixed- and variable-rate mortgages. - What Every Canadian Borrower Needs to Know About Fixed-Rate Mortgage Penalties
This post provides a detailed breakdown of the very different ways that lenders calculate their fixed-rate mortgage penalties. The amounts charged can vary significantly from lender to lender. A lower penalty can save borrowers thousands of dollars if rates drop. - What’s in the Fine Print
This post provides a detailed summary of the key terms and conditions to pay attention to in your mortgage contract.
David Larock is an independent full-time mortgage broker and industry insider who works with Canadian borrowers from coast to coast. David's posts appear on Mondays on this blog, Move Smartly, and on his blog, Integrated Mortgage Planners/blog.
September 2, 2025
Mortgage |