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Written By: Benjamin Pipicelli, Lexx Thomson, & Dorje Gyaltsen
Economics Newsletter – June 16, 2023
Canada’s Economy at a Glance
Author’s Commentary
Canadian Labour Market in May
In Canada, the unemployment rate rose from 5 to 5.2% this May, marking the highest increase since October. This increase was fueled mainly by the 15-24-year-old age category. Which often displays volatility leading up to the start of summer due to the timing of holidays and how readily available summer jobs are. The unemployment rate for prime-aged workers (25-54) actually saw the strongest increase in employment since January (+21k).
Full-time employment drove the decline in overall job count, with part-time actually slightly up. By class of worker, all of the declines in the jobs count came within self-employed, with both private and public paid employment up compared to the prior month.
Most analysts believe this week’s “weaker than expected” headlines have been exaggerated by youth employment. Forecasting one more 25bp hike from the Bank of Canada before the fall. However, with past interest rate hikes continuing to lower demand within the economy, months of either weak job growth or modest declines will likely become more common in the second half of the year, seeing the unemployment rate move up further and helping to cool wage inflation.
News and Noteworthy
Canadian Mortgage Growth Is Weakest in 20 Years Amid High Rates
Households added a net CAD $11.2 billion ($8.4 billion) in mortgage debt in the first three months of the year, according to national balance sheet data released Wednesday by Statistics Canada. That’s the smallest increase in two decades. The report suggests higher borrowing costs are weighing on many households’ ability to access credit, though residential real estate prices recovered during the quarter as inventory remained constrained. The slowdown in the net growth in mortgage debt coincides with one of the Bank of Canada’s most aggressive ever campaigns to raise to borrowing costs. After declaring a conditional pause in January, policymakers boosted the benchmark overnight rate to 4.75% last week as household expenditures continued to grow. Read more.
Ballard Power rethinking $130M China investment plan amid geopolitical risk
Canadian fuel cell-maker Ballard Power Systems is rethinking a $130 million investment in China, gauging the risk of a “geopolitical collapse” as tensions rise. Speaking at Ballard’s investor day on Tuesday, CEO Randy MacEwen said he is working with the consulting firm Deloitte to compare Ballard’s current investment plans in China against potential opportunities in Europe and the United States “to see whether that should be revisited.” “On the one side, you’ve had delays and uncertainties on the China policies, and you had a heightened geopolitical environment. At the same time, you’ve seen policies emerge in the U.S. and Europe supporting the adoption of hydrogen, supporting the adoption of fuel-cell vehicles, and supporting domestic manufacturing across the hydrogen and fuel-cell value chain,” MacEwen said Tuesday. Read more.
Almost 30% of Canadians expect they will never retire, Yahoo/Maru survey shows
As the cost of living soars in Canada, nearly one in three Canadians say they do not expect to be able to retire. That’s according to a new Yahoo/Maru Public Opinion survey of 846 working Canadian adults. The survey found that 28 per cent of Canadians who are currently working say they don’t ever expect to retire. Those earning less than $50,000 are the most pessimistic about the possibility of retiring, with 39 per cent saying they expect never to retire. The survey found that 27 per cent of those making between $50,000 and $100,000 expect not to retire, while 16 per cent of those making over $100,000 expect they will not retire. Read more.
Why the Bank of Canada rate hike won’t be one and done
More pain is on the way for indebted Canadian households, but they might be able to take some cold comfort that interest rates could soon peak, according to Bay Street economists. “The Bank of Canada did tell us that it basically lost confidence that the current level of interest rates was enough to get inflation back to 2%. It’s hard to see how a single 25 basis point hike would change that view. So I think most people now, certainly our forecast, is that the bank will hike again in July,” Stephen Brown, deputy chief North America economist at Capital Economics, said in a phone interview. He sees the Bank’s benchmark rate topping out at five per cent as more data roll in through the summer about how businesses and consumers are handling higher rates. Read more.
Tesla robotaxis to ‘transform society more than anything else’: RBC
Tesla’s plan to develop a fully-driverless taxi without pedals or a steering wheel has prompted RBC Capital Markets to raise its price target on the company’s shares by more than 40 per cent. In a note to clients on Thursday, analyst Tom Narayan predicted “robotaxis” and autonomous vehicles in general could “transform society more than anything else in our lifetimes,” saving “millions of lives and trillions of hours.” He raised his price target on Nasdaq-listed Tesla shares (TSLA) from US $212 to US $305, while maintaining an “outperform” rating. CEO Elon Musk has said a robotaxi will be ready for launch in 2024, his latest timeline for an autonomous ride-sharing vehicle originally planned to hit the market in 2020. His envisions a cheaper cost per mile than public transportation. Read more.
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