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Posthaste: Why millennials will feel the biggest pain if the economy sours – Financial Post

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Debt levels of younger generations are ‘staggering’

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Good morning,

Canadians have been feeling the strain of higher interest rates and inflation across the nation but as a recent report from RBC points out, some more than others.

Older millennials and younger members of Generation X, who have seen their debts swell to record levels in recent years, are most vulnerable to job losses, writes RBC economist Carrie Freestone.

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Indebted Canadians between the ages of 35 and 44 had a debt-to-disposable-income ratio of 250 per cent in 2019, much heavier than the debt load they carried a decade before when it was 150 per cent, she said.

That translates into $2.50 in debt for every dollar of disposable income. And it’s a lot even by Canadian standards, which at last count had the highest household debt in the G7. The national debt-to-disposable-income ratio in the first quarter of this year was 184.5 per cent.

Younger millennials, under 35 years old, aren’t much better off with debt loads of 165 per cent of their disposable income.

“The millennial generation has in many ways been defined by its staggering high household debt,” said Freestone.

The pressure, unfortunately, is only going to get worse. The Bank of Canada has raised its interest rates from 0.25 per cent to the 22-year high of 5 per cent and may not be finished yet. Canadians with mortgages coming up for renewal in the near future could see their monthly payments rise by 25 per cent, she said.

A poll done by Angus Reid after the Bank last raised rates in July found more than a third of the people polled who had a mortgage said they were having trouble making payments.

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Almost 60 per cent expected the rate increase to have a negative impact on their finances and a third were bracing for “significant” challenges.

A big problem, Freestone says, is that though earnings have grown rapidly, they have not grown enough to absorb the higher debt payments.

“Since the beginning of the pandemic, average hourly earnings have risen 12 per cent, less than half the increase of the average five-year fixed mortgage payment,” she said.

Baby boomers, on the other hand, are in much better shape.

Only 14 per cent of Canadians aged 65 and older still hold a mortgage and if they do it’s half the size of a millennial mortgage, she said.

Baby boomers and older members of Generation X, people 55 and older, have also built up a larger share of assets that benefit from higher interest rates. Canadians’ personal term deposits in banks have risen $200 billion above pre-pandemic levels, mainly on the attraction of higher interest rates, Freestone said.

Older Canadians too are less dependent on income. For Canadians aged 65 and older two thirds of income comes from private pensions and government benefits, while younger age groups get 85 per cent of their income from their jobs.

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And boomers on average spend less than younger generations. Freestone says the older age group spends a third less on discretionary goods and services than Canadians in their thirties.

So far millennials’ spending has held up despite the challenges of higher interest rates and high inflation, she said. But if layoffs rise it could “significantly derail discretionary spending.”

“While growth is still holding up even after record rate hikes, higher unemployment rates may trigger an entirely different outcome for demand in the year ahead,” she said.

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National Bank of Canada

Coming up for mortgage renewal? You might want to have a look at today’s chart. A record 95 per cent of new mortgages were fixed-rate in June, compared with 43 per cent when the Bank of Canada began hiking rates in March 2022, says National Bank economist Daren King.

Since then the Bank has raised its benchmark interest rate by 4.75 percentage points, and borrowers now looking to renew will see a steep climb in payments.

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The fixed rate majority might seem a bit puzzling considering the Bank is nearing, if not at, the end of its hiking cycle, said King.

“Does this mean that households are locking in at potential rate peak for the long term? Not so fast,” wrote King.

Most of those borrowers, 55 per cent, signed up for three to four-year terms, rather than the traditional five-year.

“There is reason to believe that they opted for this option because it is more favourable than the shorter term options (1 to 2 years) which reduces the payment and eases qualification,” King said. “However, they don’t want to miss out on possible rate reductions down the road.”

  • The Canadian bank earnings parade continues this week. So far we have had a beat and miss from RBC and TD Bank respectively. Next up are Bank of Montreal and Scotiabank on Tuesday. National Bank earnings come out Wednesday and CIBC is up Thursday.
  • Today’s Data: Bloomberg Nanos Confidence Index

Financial Post

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Investing returns have often topped inflation, but it gets more difficult to do as prices rise. Portfolio manager John De Goey says he’s concerned the current decent returns for interest-bearing vehicles, as well as high equity valuations, high debt levels and a dangerously inverted yield curve, mean investors should tread lightly. Find out more


  1. Canadians’ household debt is high, but risk of major shock is low


  2. Canada’s household debt is highest in the G7

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Today’s Posthaste was written by Pamela Heaven, @pamheaven, with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com, or hit reply to send us a note.

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Economy

Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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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 Press. All rights reserved.

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Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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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.

The Canadian Press. All rights reserved.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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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.

The Canadian Press. All rights reserved.

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