Governor of the Bank of Canada Tiff Macklem arrives for a news conference in Ottawa, on June 5, 2024.Justin Tang/The Canadian Press
Bank of Canada governor Tiff Macklem said that the Canadian economy appears to be on track for a soft landing where inflation falls back to the bank’s target without a major spike in unemployment.
At the same time, the continuing slowdown in the labour market is hitting some groups harder than others, especially new Canadians and young people, Mr. Macklem said in a speech to the Winnipeg Chamber of Commerce on Monday.
The unemployment rate in Canada has risen more than a percentage point over the past year, hitting 6.2 per cent in May, just above pre-pandemic levels. There has not been a large increase in layoffs. But businesses have pulled back on hiring as high interest rates have weighed on consumer spending and dulled corporate investment.
“This is the soft-landing scenario,” Mr. Macklem said. “It has always been a narrow path, and we have yet to fully stick the landing. Looking forward, the unemployment rate could rise further… But we continue to think that we don’t need a large rise in the unemployment rate to get inflation back to the 2 per cent target.”
The speech comes two weeks after the bank lowered its policy interest rate to 4.75 per cent from 5 per cent, the first rate cut in four years.
Mr. Macklem offered few hints about the timing of further rate cuts. But his focus on how the labour market has come into “better balance” suggests policy makers are increasingly comfortable that inflationary pressures are easing.
The rapid pace of wage growth, which can feed into inflation as companies raise prices to cover costs, remains a concern. Average hourly wages were up 4.7 per cent year-over-year in April compared to an inflation rate of 2.7 per cent. Mr. Macklem said that he “will be looking for wage growth to moderate further.”
However, he also said that the bank is focusing on certain measures of wage growth that have slowed more than the overall rate. That suggests the bank may be less concerned about wage pressures than markets expect.
“Ultimately, the Bank of Canada seems content with the progress on the labour market, although they want to see more of it,” Desjardins economist Tiago Figueiredo wrote in a note to clients about the speech.
“Barring any major surprises, we continue to see the Bank of Canada cutting rates by another 25 basis points in July,” Mr. Figueiredo wrote, noting that the bank will receive two key piece of economic data this week, the May inflation numbers on Tuesday and the April GDP numbers on Friday.
While the speech highlighted the “smooth” labour market cooling – companies have stopped posting jobs instead of firing people outright – Mr. Macklem said that the slowdown in hiring has hit young people and new Canadians particularly hard.
“With fewer job vacancies, it’s taking longer for young people entering the labour market to find a job, and their unemployment rate has risen. It’s now about 2 percentage points above its pre-pandemic average,” he said.
Likewise, job creation has failed to keep pace with the historic level of immigration over the past year, leaving more new immigrants without work.
This dynamic could help explain growing signs of financial stress among renters, who are often younger workers and newcomers. While mortgage delinquency rates remain relatively low, late payments on credit cards and auto loans are above pre-pandemic levels, especially for renters.
Looking further ahead, Mr. Macklem used his podium to highlight Canada’s lagging productivity (output per worker), which he called the country’s “Achilles’ heel.”
This has become a major theme for central bank officials. Senior deputy governor Carolyn Rogers created a stir several months ago by calling poor productivity and low levels of business investment in machinery and equipment an “emergency.”
Mr. Macklem said that Canada has been good at growing its economy by increasing the number of workers, but not by increasing output per worker. This needs to change for the Canadian standard of living to keep improving as the population ages and the country bumps up against the “limits” of immigration policy, he said in a press conference after the speech.
He said that politicians and policy makers need to get a grip on why business investment is relatively weak in Canada. And he offered a few ideas to improve the investment climate, including lowering interprovincial trade barriers and speeding up regulatory approvals for companies and projects.
“There are also a whole range of bigger questions that I think are going to need more thought,” he said. “The role of multinational versus home headquartered businesses. Investing in houses, investing in machinery and equipment. There are a number of big questions. I don’t have all the answers but I think we need we need to collectively be thinking about those.”
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
