Inflation has tumbled in recent months. The jobs market continues to hum along. Yet if you ask Canadians how they are feeling, the overwhelming answer is miserable.
Why is there such a disconnect between the state of the economy as measured by many standard indicators and the public mood about the economy? There is no simple explanation, but the gap between the two is getting hard to ignore.
The Conference Board of Canada declared this week that its indexes of consumer and business confidence have fallen to their lowest levels since the pandemic. It added that a sizable majority of Canadians – 61 per cent – say the country is already in a recession.
Economic turmoil is pushing people toward despair, according a poll published this week by Mental Health Research Canada. Nearly four in 10 of the 3,819 people it surveyed saideconomic issues are affecting their mental health.
These are disturbing numbers. However, they are difficult to explain by pointing to some obvious economic emergency.
Yes, it’s true that Canada’s output flatlined in the second quarter. However, that was in part a reflection of massive forest fires. On most economic measures, Canada still seems far from desperate.
Unemployment, for instance, continues to hover close to multi-decade lows. Wages are growing at a healthy 4- to 5-per-cent clip. Stocks are up this year; so are home prices.
The only major economic variable that is plunging is inflation and that is exactly the one that we want to be plunging. Total consumer price index inflation – and, yes, that includes both food and energy prices – has slid to 3.3 per cent, less than half its peak of 8.1 per cent in June, 2022.
So what’s going on here? Why have people turned so much gloomier than the standard numbers would suggest is reasonable?
One theory is that it has something to do with the anxiety-inducing impact of inflation. Consumers hate seeing their salaries and savings corroded by rising prices. Maybe they are still struggling to adjust to the vicious ups and downs of inflation over the past couple of years.
This seems plausible. It doesn’t explain, though, why the dramatic plunge in inflation in recent months hasn’t brightened the mood.
A more disturbing explanation for the boom in gloom is that many Canadians are worried about how rising interest rates are going to affect their ability to keep up with mortgage payments.
This, too, seems like reasonable grounds for distress. However, it also seems a trifle premature. Many homeowners are still benefiting from low-rate mortgages they negotiated during the pandemic. By the time their current mortgages expire in a year or two, there is a good chance that the Bank of Canada will have chopped rates.
This brings us to a more comprehensive theory: Maybe Canadians are growing glum because it is now becoming obvious that many of Canada’s structural problems are getting worse, not better.
One obvious example is home prices. They have moved far beyond the buying power of many households, according to Royal Bank of Canada’s affordability calculations. While rising interest rates may have slightly cooled parts of the market, home ownership remains out of reach for most young Canadians.
Policy makers talk about this problem endlessly, but do little to actually address it. Nineteen months ago, the Ontario government’s housing affordability task force delivered 55 recommendations to boost housing supply. So far, the province has implemented only three of them, according to economist Mike Moffatt of the PLACE Centre, an Ontario-based think tank dedicated to encouraging sustainable communities.
Ottawa is also fumbling the ball. It talks up its commitment to housing affordability, but remains wedded to a supersized immigration strategy that is overwhelming the country’s supply of housing.
The immigration strategy seems designed to boost Canada’s economic output, or gross domestic product (GDP), by rapidly increasing the number of people in the country. However, it does nothing to improve the standard of living for individual Canadians. The key factor there isn’t Canada’s total amount of GDP but rather its GDP per capita – how much output there is per person.
Remarkably, Canada’s real GDP per capita hasn’t budged in six years. This may surprise you. On paper, the country’s output has shot up by nearly 33 per cent since 2017. But as Mr. Moffatt points out, once you deduct the impact of inflation and population growth, all the apparent growth disappears.
The long stagnation offers one excellent reason for why Canadians may be feeling down despite an economy that is still chugging along nicely on many fronts.
The question now is what happens next. Bank of Montreal economist Benjamin Reitzes pointed out in a note this week that Canadian living standards have risen steadily over the past six decades thanks to rising GDP per capita. The only times that real GDP per capita did not grow over a six-year period since the 1960s were in the early 1990s, the pandemic – and now.
“Perhaps it’s time to re-examine Canada’s economic policies and priorities,” Mr. Reitzes wrote. Amen to that.
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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