Forecast sees job market resilience, fewer rate cuts, and muted momentum in home sales
Canadian workers could soon gain more bargaining power as a tighter labour market fuels faster wage growth, according to a new economic forecast from The Conference Board of Canada.
The think tank expects that slower population growth, driven by federal efforts to curb immigration, will lead to stronger wage increases in the years ahead, even as hiring remains cautious amid ongoing trade tensions with the US.
“There is sort of a movement towards workers having a little more power, and that should accelerate wage growth a little bit in the second half of the year and into next year,” Cory Renner, the board’s associate director of economic forecasting, said in an interview, according to The Canadian Press.
Wage growth is already holding steady. Average hourly wages rose 3.4% year-over-year in May, matching April’s pace, according to Statistics Canada. The Conference Board projects this trend to continue as labour force growth slows, tipping the balance back in favor of workers.
In the first quarter of 2025, employment outpaced labour force growth for the first time in more than two years, the report said. This reversal suggests businesses may soon struggle to find talent, leading to increased competition for workers and ultimately higher wages.
The national unemployment rate, which stood at 7% in May, is expected to decline to 6.2% in 2026 and 5.8% by 2027.
Tighter labour supply influences housing market outlook
While rising wages could support consumer confidence and housing demand, the effects are expected to be nuanced, especially in light of the federal government’s move to restrict immigration, a key driver of both labour supply and housing demand in recent years.“Lower immigration will be a bit of a dampener on consumer spending and, of course, the housing markets and rental markets for a little while,” said BMO senior economist Sal Guatieri earlier this year.
The Conference Board report noted that housing activity has been largely depressed in 2025, as fears of job losses sidelined would-be homebuyers. While a slight rebound in home sales could take shape next year, a sustained immigration slowdown could reduce pressure on the housing market.
Read more: Could population decline spell trouble for Canada’s housing market?
Guatieri believes that if population growth slows significantly, it could reduce the urgency behind the federal government’s ambitious homebuilding targets, which currently aim to double annual housing starts.
“I’m not so sure we’ll need a half-million new homes every year as planned unless immigration gets back to 3% annual growth,” he said.
Tariff contraction
The Conference Board said that although Canada’s labour market has been “resilient” in 2025, much of the pressure has been concentrated in trade-sensitive sectors like manufacturing and transportation.
Overall employment remains slightly above end-of-2024 levels, but hiring is expected to stay subdued for the rest of the year as companies grapple with economic uncertainty tied to US trade policy.
“The labour market’s actually holding up better than we expected,” Renner said, describing it as one where both workers and employers are hesitant to make big moves.
The board forecasts economic growth of 1.5% in 2025, with a possible contraction in the second quarter due to tariffs before momentum gradually returns.
The Bank of Canada has held its benchmark interest rate at 2.75% in its last two decisions, citing the need for more clarity on how tariffs are influencing inflation and growth. Inflation was 1.7% in May, with modest improvement in core measures but not enough to shift market expectations ahead of the central bank’s next announcement on July 30.
The Conference Board expects one more quarter-point rate cut in the second half of the year. Renner said the decision will depend on whether tariff-related weakness intensifies or whether inflationary pressure persists.
“If we see higher tariffs on Canada, we see the economy weaken more, then at that point, we think the Bank of Canada will have more interest in cutting rates further,” he said. “But for now, really, the risks seem to be tipping towards higher inflation and the economy just barely hanging on.”
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