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Written By: Benjamin Pipicelli, Lexx Thomson, & Dorje Gyaltsen
Economics Newsletter – October 20, 2023
Canada’s Economy at a Glance
Author’s Commentary
Canadian Consumer Spending
Despite the fairly cautious attitude of Canadian households, there are early indications that some are struggling in this higher interest rate environment. While bankruptcies remain historically low, proposals have risen above their pre-pandemic level even on a per capita basis. The proportion of indebted households that are behind with their monthly payments remains fairly low by historical standards, but the fact that could reflect many mortgages have yet to be reset at higher interest rates. The proportion of loans in arrears for other types of consumer loans has generally risen more and most are now at levels above pre-pandemic norms.
The cracks that are starting to show up in Canadian consumers’ spending behaviour and finances are expected to get gradually wider, as more households refinance mortgages at higher interest rates, and as the unemployment rate drifts higher. However, these cracks aren’t expected to turn into a chasm, in part due to the fact that households have already started to make some adjustments and aren’t spending excessively relative to pre-2020 norms. That also means that consumer spending doesn’t need to crater in order to bring inflation back to a 2% target. Indeed, very modest growth in household spending on average during the second half of 2023 and into 2024, would still likely be consistent with 2% inflation by the second half of next year.
News and Noteworthy
Bank of Canada says economy is not heading for a ‘serious recession’
Bank of Canada Governor Tiff Macklem on Friday said the economy is not heading for a “serious recession” and that he is looking for a clear sign underlying inflation is easing ahead of a rate decision on Oct 25. Growth unexpectedly shrank in the second quarter and stalled in the first two months of the third, while core inflation has proven sticky. September consumer price inflation numbers will be published on Tuesday. “We’re not going to be forecasting a serious recession,” Macklem told reporters in a call from Marrakech, Morocco, where he was attending an IMF meeting. The rate announcement will be accompanied by an update of the bank’s economic forecasts. Read more.
Gas prices in Canadian cities extend drop this week
Gas prices dropped in virtually all major Canadian cities this week, with Vancouver bucking the trend with a 1.7-cent jump over the past seven days. According to pump prices from more than 70 cities compiled by data firm Kalibrate, the average retail cost of regular gasoline fell 4.5 cents per litre between Oct. 5 and Oct. 12 to $1.567. The decline follows a 7.2-cent drop last week. Abbotsford, B.C. booked the biggest pullback this week, with prices falling 18.5 cents to $1.714. Read more.
Most small businesses optimistic about future despite economic uncertainty
Despite economic uncertainty and concerns about high inflation and interest rates, small business owners in Canada are feeling optimistic about the future, a new report has found. According to a Scotiabank survey of nearly 1,700 Canadian small businesses with revenue between $50,000 and $5 million, two-thirds (66 percent) say they are very or extremely optimistic about the future of their business. The positive sentiment is even higher in Atlantic provinces (83 percent) and in Saskatchewan and Manitoba (82 percent). Read more.
Power grids ‘miles away’ from ready, as clock ticks on Canada’s net-zero goals
Canada’s power grids are “miles away” from being ready for enough electric vehicles (EVs) to meet the federal government’s net-zero goals. It’s a challenge compounded by labour and copper shortages, as well as uncertainty about where to invest. That warning is courtesy of Jerome Leroy, vice president of the Canadian business unit of global cable supplier Nexans. At its Montreal plant, the Paris-based company is stripping metal out of scrap cable to help ensure enough supply is available for its utility customers. Read more.
Battered dividend stocks may be buying opportunity for investors
For the first time in years, TD investment advisor Michael Currie is hearing from clients concerned about what he says has been “a bit of a sacred cow” among Canadian investors. “I’ve had many conversations with clients, especially older ones, who are saying, ‘Why am I sitting on these dividend-paying stocks making four, 4.5 percent, watching them go up and down but mostly down, when I can buy a bond or GIC at five percent and I’m guaranteed?'” Currie said in an interview with Yahoo Finance Canada. Read more.
Economics Society News, Events, and Articles
– Keep an eye out on our Instagram page @UWEconSoc for updates regarding future events
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– Check out our latest original article, “Swiftian Economics – Resurgence or Trend?”, written by Stefan Venceljovski!