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Written By: Benjamin Pipicelli, Lexx Thomson, & Dorje Gyaltsen
Economics Newsletter – August 18, 2023
Canada’s Economy at a Glance
Author’s Commentary
Canadian Savings on a Decline
In regular times, the rich differ in that their consumer spending is much less tied to just how much money they made in a given year, as they can draw on their wealth to smooth out their consumption patterns. The average Canadian can’t chase a Great Gatsby lifestyle. But in the past two years, many have been able to tap into an atypically large pool of savings, accumulated in the first half of the pandemic when travel, movies, and restaurants were shunned and spending, therefore, trailed incomes.
The Bank of Canada’s latest policy report expressed concerns that this financial spending cushion might continue to dull the response to higher interest rates, necessitating a deeper pullback in incomes to cool spending. They pointed to the fact that across most income groups, the ratio of liquid household financial assets to spending is still elevated relative to its pre-pandemic level.
Relative to the pre-Covid trend, all of the excesses in liquid assets are now showing up in term deposits and other vehicles that pay high-interest rates. These assets are now tough competition for stocks and bonds. Funds in chequing accounts with much lower rates are no longer pushing us above trend. Moreover, Canadians that had their longer-term savings in either stocks or bonds haven’t had much to crow about in recent years, a reason why a 5% GIC might look tempting.
News and Noteworthy
Canada’s unemployment rate ticks up; BoC pause more likely
Canada unexpectedly shed a net 6,400 jobs in July and the unemployment rate ticked higher for the third consecutive month, bolstering expectations that the Bank of Canada will put its tightening cycle on pause. Canada’s unemployment rate increased to 5.5 percent in July, up from 5.4 percent in June, as strong population growth outpaced job growth. The print came as a surprise to analysts polled by Reuters, who had expected a net gain of 21,100 jobs. The unemployment rate was in line with analyst expectations. Read more.
Canada’s money managers mirror ESG backtrack on Wall Street: report
North America’s largest asset managers pared back climate-friendly actions last year, a trend coinciding with anti-ESG (environmental, social, and governance) backlash from American lawmakers, according to a new report. U.K.-based think tank InfluenceMap says it analyzed 45 of the world’s largest asset managers, a group with US$72 trillion in assets under management. Its report, released on Monday, points to a “significant gap between the increase in net-zero commitments by the world’s largest asset managers and their lack of meaningful short-term climate action.” Read more.
Bank of Canada rate hikes hitting young adults hardest
Young adults outside Canada’s most populous provinces are feeling the pinch from the Bank of Canada’s rate hikes more than older age groups, and those in Ontario and Quebec, a new poll suggests. The latest Yahoo/Maru Public Opinion poll reached 1,527 Canadian adults between July 21 and 24. More than half (52 percent) say higher borrowing costs are either causing anxiety due to money pressures (36 percent) or making them “worried sick” about their financial futures (16 percent). Read more.
Algonquin to exit renewables; interim CEO predicts ‘very attractive’ deal
Algonquin Power & Utilities’ (AQN.TO) (AQN) new interim CEO says the renewable energy business the company intends to sell to improve its balance sheet has already received interest from potential buyers, suggesting the assets will be “very attractive to the marketplace.” Algonquin on Thursday announced company insider Christopher Huskilson would replace chief executive Arun Banskota on an interim basis. The change came as the company revealed a plan to sell its renewable energy division following a strategic review launched in May. Read more.
Ballard Power stock rises as new orders climb more than 100%
Ballard Power Systems (BLDP.TO) (BLDP) shares climbed on Wednesday as the fuel cell maker for buses, trucks, trains, and more told investors that its swelling order book will keep growing. The Vancouver-based company, which keeps its books in U.S. dollars, reported second-quarter financial results before the opening bell. Ballard saw a net loss of US$30.1 million as revenue dropped across most of its heavy-duty mobility portfolio. However, the company boasted US$25.1 million in new orders in Q2, up from US$12.3 million in the same quarter last year. Read more.
Economics Society News, Events, and Articles
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*As of market close on Friday, August 18