In this week’s The Seven… 

• Chop, chop - Interest rates in Canada and the U.S.
• Weak numbers - Canada’s economic output in August
• Fiscal watch - Tuesday is federal budget day
• Waves of change - AI and the future of jobs
• Interesting Fact: Red Deer’s population growth
• Chart of the Week: The link between exports and employment

Waddaya want? Let’s play ball! 

—“OK Blue Jays” by Keith Hampshire and The Bat Boys (written by Jack Lenz and Tony Kosinec)

"Let's play ball!" It's the classic call that signals it's time to get serious and get started. That sentiment is echoing across the country right now, from the actual baseball diamond heading into the final game(s) of the World Series to the tense environment of cross-border trade.

On the literal side, we're hoping the Blue Jays can "play ball" all the way to a World Series victory for the first time since 1993 (even if productivity was down this week for those who stayed up for all 18 innings of game three).

However, the idea resonates far beyond the World Series. Take the relationship with our American cousins. A TV ad sponsored by the Ontario government featuring Ronald Reagan talking about tariffs led President Trump to cancel tariff negotiations with Canada and announce an additional 10% charge on Canadian imports (albeit with no accompanying details). We need the teams back on the field so they can finish the game and get a deal done.

At least the central banks decided to throw a pitch this week. Both the Bank of Canada and the U.S. Federal Reserve added a little stimulus to their economies via cuts to their policy interest rates.

In other news, the impact of AI on jobs made headlines, we got a better idea of how the Canadian economy is performing with a new GDP report and the federal government is releasing its budget next week. More on these developments below.

Oh, and happy Halloween!

Chop, chop - Interest rates in Canada and the U.S.

Wednesday was a busy day for interest rate watchers with announcements from both the Bank of Canada and the U.S. Federal Reserve. Both central banks were expected to cut and they did just that with each shaving a quarter of a percentage point off their policy rates.

The cuts won’t have a huge impact on the overall economy, but they will add a little extra stimulus.

As for what’s next, our take is the Bank of Canada is likely done cutting for now. With the policy rate sitting at the bottom of the Bank’s neutral range (2.25%), it won’t want to risk spurring inflation with additional cuts unless economic conditions deteriorate. As the Bank stated in its press release, “If inflation and economic activity evolve broadly in line with the October projection, Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment.”

The Bank’s latest forecast sees the Canadian economy growing by 1.2% this year and 1.1% in 2026. These are already weak numbers, but the Bank is arguing that the “structural damage caused by the trade conflict…limits the role that monetary policy can play to boost demand while maintaining low inflation.”

The Federal Reserve’s next move is less clear with inflation higher than in Canada arguing against cuts and the labour market data it uses to inform its decisions not currently available due to the government shutdown. Markets have priced in four additional cuts by late 2026, but above-target inflation and strong GDP numbers could affect this.  

Weak numbers - Canada’s economic output in August

Canada’s weak economic performance continued in August with the latest GDP numbers showing a contraction of 0.3%. Tariffs and tariff uncertainty were certainly not helping, but other factors including the Air Canada strike and drought conditions hampering hydroelectric power generation were also in play.

Looking at the outlook for the third quarter (July, August and September), the current numbers suggest output grew by 0.4% (annualized). This would be an improvement over the 1.6% decrease posted in Q2 but still a very tepid rate of growth.

Fiscal watch - Capital and defence spending set to ramp up in next week’s federal budget

The main economic event of next week is the federal budget coming down on Tuesday. With a trade war in the background and the Bank of Canada likely on hold, eyes are turning to how the federal government proposes to boost Canada’s struggling economy.

Here are some of the things we’ll be watching for:

Increased capital spending -  We’re being told this will be a capital-focused budget aimed at long-term economic growth. The details will be key with the budget introducing a new approach to defining what counts as operating costs versus capital investment.

Reduced operating costs - If the goal is to bring the operating budget into balance, this will, unless tax increases are in play, require spending reductions.

Larger deficits - The Parliamentary Budget Officer (PBO) estimated in September that the federal deficit could widen to $68.5 billion this year from $51.7 billion last year. And it will likely be higher with the PBO’s estimate not including potential new spending such as the commitment to increase defence expenditures to 5% of GDP.

Build, baby, build - We aren’t expecting another list of major projects (which will apparently come later in November), but it would be useful to get some indication on how the federal government plans to support major projects and what kind of dollars are involved.

Corporate taxes - It’s been argued that improving corporate tax competitiveness is needed to boost Canada’s productivity and turnaround sagging business investment. Will the budget go down this road?

Immigration policy - The Prime Minister promised the budget would include a new immigration plan. Whether this will include how the federal government expects to meet the workforce requirements of the Building Canada Act and if it will try to attract workers from the U.S. in the wake of H1-B visa restrictions in the U.S. remains to be seen.

Defence spending - Canada has agreed to spend 5% of its GDP on defence by 2035, up from about 2% today so we will be looking for details regarding what this will entail.  

Waves of change - AI and jobs

A recurring question from the audience while out presenting on the economy is: what impact will AI have on jobs? This issue was also a major news item this week with Amazon announcing it is cutting 14,000 corporate jobs to spend more on AI. One (albeit very large) company cutting jobs is not, however, an indication of a broader trend with a recent study of the U.S. labour market finding that, “despite fears of an imminent AI jobs apocalypse, the overall labor market shows more continuity than immediate collapse.”

Okay, but the impact of AI and other technological advances are arguably just getting started in terms of their impact on jobs. So what can we expect?

There’s no crystal ball to look into for an answer, but past periods of technology-driven change suggest that there will be three broad waves of transformation in the labour market brought on by AI.

1) Just how many remains to be seen, but jobs will be lost. Think of all the people who worked outfitting horses before the automobile or, more recently, the over 80,000 Blockbuster employees who fell prey to the advent of streaming services. As noted in an earlier edition of The Seven, a Stanford University study shows that AI has already started to “significantly affect entry-level employment.”

2) As with the job losses, it’s difficult to put a number on it, but jobs will also be created. From robot repair shops to the need for AI product managers to higher demand for ethics professors who can help us understand the implications of AI, new opportunities for gainful employment should emerge.

3) Likely the most pervasive change will be the integration of AI with existing jobs. More and more workers will find themselves working alongside or with AI in some way. The possibilities here are very broad. For example, in a recent interview with the owner of a framing company that physically puts up walls, we learned that he is looking to AI to reduce the amount of time it takes to enter specifications for prefabricated products.

Successfully managing these waves of change will require, among other things, proactive and thoughtful support for displaced workers, public and private investment in retraining and education programs, and careful business planning and capital expenditures.

Interesting Fact: Red Deer’s population growth

If you haven’t had a chance to turn off the QE2 and explore Red Deer (those donuts are delicious, but there is a lot more to the city than what you find along the highway), you might be surprised to learn that it has grown into Alberta’s third largest urban area. Statistics Canada made it an official Census Metropolitan Area in the 2021 Census (a CMA must have a population of at least 100,000 with 50,000 or more living in its urban core), joining the CMAs of Lethbridge, Edmonton and Calgary.

Between 2001 and 2024, the Red Deer area grew by over 42,000 people to reach 112,749 for a total increase of 60% and average annual growth of 2.1%. According to the latest projections, the region will add another 36,000 to its population by 2051 to land at just under 150,000 residents with an average annual growth rate over this period of 1.0%.