With central banks aggressively raising interest rates and the word “recession” suddenly on a lot of lips, everyone is nervously looking at every statistical release for signs that the economy has started to dip.
You don’t need to look all that hard. It has. Frankly, it has run out of room to go any other direction.
Recent data suggest that the wave of economic recovery from the COVID-19 recession has already crested. Fast-rising interest rates may be applying the brakes on an economy that has begun to decelerate anyway.
On the other hand, if central bank rate hikes signal that the party is coming to an end, they do so at a time when the punch bowl is full.It’s a long way to go before a slowdown from the peak of an economic cycle starts to look like a recession.
Consider last Friday’s employment report from Statistics Canada. Jobs grew a puny 15,000 in April, which, given margins of error, amounts to a statistical goose egg. This marked the first month since the recovery from the recession began that the labour market truly stalled, without any new wave of the virus or increase of public-health restrictions to blame.
Economists viewed the number not so much with alarm as resignation. The unemployment rate is the lowest on modern record, and businesses have been widely reporting acute labour shortages for months. The supply of available labour has effectively run dry.
Meanwhile, Canada’s housing market has taken a decided turn, as the Bank of Canada’s rate hikes have had an almost instant numbing effect. National home sales fell more than 5 per cent in March from the previous month, according to the Canadian Real Estate Association; preliminaryfigures for April indicate 20-per-cent-plus slumps in the long-booming major markets of Toronto and Vancouver.
The speed and severity of the sales drop suggest that the country’s housing market was ripe for a downturn, just waiting for a catalyst. With the Bank of Canada expected to raise rates considerably higher still over the next few months, housing could continue to slow for a while.
In both cases, these elements of the economy were giving off clear signs of being strained to their limits. A slowdown is not only inevitable, but healthy, and levels of activity remain elevated even with the pullback. Nevertheless, a slowing of hiring, and of residential real estate, implies deceleration of two of the most important drivers of Canada’s growth during the recovery from the COVID-19 recession. Their retreat is a pretty good indication that the economy, having already reached the limits of its capacity, is headed into the downside of the economic cycle.
In the United States, meanwhile, some economists argue that the descent was under way long before the Fed jumped into rate increases with both feet last week. The U.S. government recently estimated that the economy contracted at an annualized pace of 1.4 per cent in the first quarter of 2022. Economist David Rosenberg, of Toronto-based Rosenberg Research and Associates Inc., points out that since October, when U.S. real GDP peaked, the economy is down at a 2.4-per-cent annualized rate.
Sébastien McMahon, senior economist at Industrial Alliance Investment Management, says there is mounting evidence that high inflation is eroding U.S. consumer demand.
“Inflation is now pushing real (inflation adjusted) U.S. disposable income on a downward trajectory, meaning that purchasing power is contracting,” he said in an e-mail last week.
The economic view for Canada looks somewhat brighter, as the war in Ukraine has further elevated already high prices for oil and commodities, giving Canada’s substantial resource sector a lift. Nevertheless, with the United States accounting for three-quarters of Canadian exports, Canada’s economy is heavily exposed to any U.S. slowdown. At any rate, Canada’s exports to the U.S. soared 25 per cent over the past two quarters – suggesting that the export sector may be another part of the economy poised for a slowing of unsustainable growth.
The economy has had a great run – indeed, a remarkable run, given the severity and uncertainty of the COVID-19 recession – but we’re looking over the edge of the peak. From here, the risks to the downside are not only unavoidable, they’re now visible. That came into focus in last week’s sell-off in the stock market – which, as portfolios shrink in this adjustment of thinking, presents yet another drag on demand and growth.
Any time the economic cycle turns downward, there’s some danger that it ends in recession. That’s exacerbated when monetary policy is leaning hard into the descent, as it is now.
But let’s remember – and this is the Bank of Canada’s key argument – this isn’t an economic shock up-ending an economy in mid-expansion. We really are going into this from the top, from a position of considerable strength. The economy can decline a lot from this point while still maintaining healthy levels of activity, employment and growth. That’s certainly the hope, as the bank devotes its attention to shutting down inflation.
The one factor that could carry both the Canadian and U.S. economies through this is the huge glut of household savings that have built up over the pandemic. Those savings could sustain consumer demand even as employment gains wane, borrowing costs rise and inflation nibbles away at real incomes.
But the key drivers that have propelled consumption up until now – booming employment, surging housing wealth, rising stock markets – look unlikely to do so for much longer, if at all. Without them, inflation and rising borrowing costs will be pretty high hurdles for consumer demand to clear, even with those savings to draw upon.
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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
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