2 Articles on the Economy: 1) Canada’s Jobless Rate Rises To 5.7% Fuelling Bets Bank Of Canada Rate Hikes Are Done; 2) Economy On Brink Of Mild Recession, According To StatCan Preliminary Data
1) Canada’s Jobless Rate Rises To 5.7% Fuelling Bets Bank Of Canada Rate Hikes Are Done
Courtesy of Barrie360.com and Canadian PressPublished: Nov 3rd, 2023
By Nojoud Al Mallees in Ottawa
Canada’s unemployment rate rose to 5.7 per cent last month as job opportunities became less plentiful in an economy weighed down by high interest rates.
Statistics Canada released its October labour force survey Friday, which showed the economy added a modest 18,000 jobs.
The gain was not enough to keep the unemployment rate from rising as the pace of job creation trails population growth.
Canada’s unemployment rate was 5.5 per cent in September.
October marks the fourth increase in the jobless rate over the past six months and adds another data point in favour of the Bank of Canada’s rate pause, according to economists.
“While the headline job gain was uneventful, make no mistake that the underlying picture for Canada’s labour market is softening,” wrote Bank of Montreal chief economist Douglas Porter in a note to clients.
Employment rose last month in construction and information and culture and recreation, but the increase was offset by declines in wholesale and retail trade as well as manufacturing.
Wages continued to grow quickly, but the pace slowed last month compared to September, with average hourly wages up 4.8 per cent to $34.08 from a year ago.
The Bank of Canada opted to hold its key interest rate steady at five per cent during its last two decision meetings, largely due to growing evidence that the economy is feeling the impact of higher rates.
Gross domestic product data showed the economy shrank in the second quarter and a preliminary estimate from Statistics Canada suggests another contraction in the third quarter.
The labour market has remained relatively resilient since interest rates started to rise in March 2022 as employers maintained their appetite for hiring post-pandemic. But job vacancies have been on the decline this year and Friday’s report suggests job prospects are continuing to dwindle.
Among those who were unemployed in September, a larger proportion stayed unemployed in October than 12 months prior, suggesting “job seekers are facing more difficulties finding employment than a year ago.”
Employment opportunities are expected to become even more sparse as the effect of previous rate hikes increasingly filter through the economy.
“In no way should the Bank of Canada hike again, given everything we know right now,” said James Orlando, TD’s director of economics. “We think they’ve done enough. And they should just … hold steady right now and (let) the economy continue to slow.”
The unemployment rate has already risen by 0.7 percentage points this year and Orlando says TD is expecting it to climb to 6.7 per cent in 2024.
“The 0.7 per cent adjustment is big, and it’s moving in the right direction with respect to getting the economy into balance. But there’s still more to go,” Orlando said.
While the Bank of Canada has not fully closed the door to more rate hikes, governor Tiff Macklem has made it clear that the central bank doesn’t want to raise rates more than necessary.
During a Senate committee meeting this week, Macklem said the bank opted to hold rates steady in part because it is anticipating a wave of mortgage renewals will further cool the economy.
Canadians who are renewing their mortgages with higher interest rates are forced to cut back elsewhere, slowing spending on goods and services.
The Bank of Canada is hoping this pullback will slow inflation and bring it back to its two per cent target.
So far, inflation has fallen considerably from a peak of 8.1 per cent, reaching 3.8 per cent in September.
But higher borrowing costs are posing a new challenge to families, while the cost of necessities continues to climb rapidly.
In October, Statistics Canada says one in three Canadians reported living in a household that found it difficult or very difficult to meet its financial needs when it comes to transportation, housing, food, clothing and other necessary expenses over the previous four weeks.
While that figure is down slightly from a year ago, it’s still up considerably from October 2020, when 20.4 per cent of Canadians reported the same thing.
2) Economy On Brink Of Mild Recession, According To StatCan Preliminary Data
Courtesy of Barrie360.com and Canadian Press Published: Oct 31st, 2023
By Nojoud Al Mallees in Ottawa
The Canadian economy may have entered a technical recession as high interest rates weigh on consumer spending, preliminary data from Statistics Canada suggests.
The federal agency released its August gross domestic product report on Tuesday, which shows the Canadian economy remained flat in the month. Meanwhile, a preliminary estimate is tracking a small contraction in the third quarter.
The weaker-than-expected data is reinforcing forecasters’ expectation that the Bank of Canada is done raising interest rates and sparking recession chatter.
“I don’t think they are going to hike interest rates again, given how weak the economy is,” said Andrew Grantham, CIBC’s executive director of economics.
August marked the second consecutive month where growth remained flat, and early data suggests the economy continued that trend in September.
For the third quarter, Statistics Canada’s preliminary estimate suggested the economy shrank at an annualized rate of 0.1 per cent, which would follow a contraction in the second quarter.
A technical recession is defined as two consecutive quarters of negative growth, but economists generally look for broader-based weakness to qualify a downturn as a recession.
“The declines are still very small,” said Nathan Janzen, assistant chief economist at RBC. Grantham says it’s clear Canada is “skirting a recession.”
“The economy is very weak, we are stalling at a time where we haven’t really felt the biggest impact yet of some of these past interest rate hikes,” Grantham said.
At the same time, he cautioned against reading too much into the estimate, noting it could be revised up when the final data is released.
A recession is often associated with layoffs and a rise in unemployment as business conditions worsen. Grantham says CIBC expects the job growth to be sluggish and to trail population growth. However, layoffs have been uneven across sectors so far, he said.
“What’s different from this situation compared to more typical recessions is that we are seeing layoffs in some sectors, but there are still other areas of the economy that are trying to rehire and get back to their full capacity, because they weren’t able to do that after the pandemic because of labour shortages,” he said.
“So what we’re seeing more so than big layoffs and a rise in the unemployment rate, is maybe that the quality of employment is changing. Maybe some of the higher-paying industries are letting people go, but there are lower-paying sectors that are still trying to hire, so that protects us to a
certain extent.”
The report said eight out of 20 industries grew in August, while growth in services-producing sectors was offset by goods-producing sectors.
The report says higher interest rates, inflation, forest fires and drought conditions continued to weigh on the economy. Grantham says the effect of natural disasters and weather events on growth
is a reminder that climate change can feed into inflation because of supply disruptions.
“It is a supply constraint; it holds back economic activity. But at the same time, that’s not necessarily a restraint in economic activity that helps get inflation under control. Actually, quite the opposite. It tends to add to inflation,” Grantham said.
The details in the GDP report offer more evidence of interest rates working to slow the economy, as consumer-sensitive sectors such as retail take a hit, even as the population grows rapidly.
“The fact that you’re seeing activity in those sectors soften, despite population growth, is more evidence that higher interest rates are starting to have a more significant impact on per person household spending behaviour,” Janzen said.
Industries such as agriculture and forestry, manufacturing, retail and accommodation and food services shrank.
Among the industries that experienced growth are wholesale trade and mining, quarrying, oil and gas extraction.
The Bank of Canada opted to hold its key interest rate steady at five per cent at its last two decision meetings. Janzen said Tuesday’s release solidifies this decision.
“This makes it more likely that they won’t hike interest rates again,” he said.
High interest rates are expected to continue dampening growth in the economy, particularly as more households renew their mortgages at higher rates.
A recent forecast from the Bank of Canada suggests economic growth will remain weak for the rest of the year, and into 2024.
The pullback in spending caused by higher borrowing costs is supposed to help cool high inflation, which was sitting at 3.8 per cent in September.
The Bank of Canada expects annual inflation will return to the two per cent target in 2025.
Patricia is the Business Mentor and owner of Grow Vantage and a Past President of the Barrie Chamber of Commerce. She applies over 30 years of business experience (from start-up to corporate) to mentor entrepreneurs. Since 2011, she has held over 6,500 coaching and training sessions in-person and online. Through Ask For Directions Training, her entrepreneurial training program (and parent company Grow Vantage), and as a business coach, she works with start-ups who are new (or who have lost traction) to design, launch and grow their businesses. Along with 20 other expert instructors she teaches strategies in marketing, sales, communications, and finance, as well as practical techniques to increase productivity, and manage their businesses. In other words, everything entrepreneurs need to learn to grow and run their businesses successfully, and avoid the costly mistakes they can't even see coming - that lead to delays in growth and getting stuck.
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