Canada is not in a recession right now, but a new consumer survey published a few days ago found that almost two-thirds of Canadians believe the country is currently in one, or will be, before the end of the year. It feels like we've been in a recession for a few years already. You go to school, you get a degree, and you're still not guaranteed a job.
The cost of living in Canada is sick. There is no more cost of living. There is only cost of surviving. And we know what recessions look and feel like, right? One, there's less.
People cut back on spending. Money's tighter. Two, businesses struggle because of that drop in spending. You often see bankruptcies go up.
And three, unemployment rises. Companies hire less or lay off their staff. And it's harder to find a job if you're looking. All of those things are true.
Right now, in 2024. Except, again, we're not in a recession. And we haven't been for years. We have a lot of clients meet us and ask us, you know, are we going into a recession?
Are we in a recession right now? Because it sure feels like we're in one. Some economists, like Kerry Freestone, argue that there's something unusual going on here, making it seem like Canada is doing better than Canadians feel like we are.
Which allows us to escape that dreaded R-word, recession. Even when all the signs pointing to one are there. Let me explain. Let's start with all the recession-like symptoms that we're experiencing right now.
First, unemployment. It's not Canada's unemployment rate in and of itself that's worrying economists. It's by how much and how quickly that rate has gone up. So now we're in a situation, the unemployment rate sitting at 6.4%, that's not that high. The context here, though, is that it's coming off of a really, really low base.
Coming out of the pandemic, it seemed like businesses were hiring left, right and centre. And by mid-2022, Canada's unemployment rate hit its lowest point in almost 50 years. Employees had all the leverage.
And you remember in Canada and the US, the so-called Great Resignation. Thousands of people switching their jobs. careers or even retiring.
What we're experiencing is a massive correction in the labour market. Things have changed a lot since then. Here's a graph from the Bank of Canada's July policy report showing a significant drop in what they call the job finding rate, which is essentially how many unemployed people find jobs from one month to the next.
New people coming into this country, graduates from high school and college and university are not finding it easy. at all to find work. And the overall unemployment rate has shot up too, about 1.6% since 2022, which, I get it, doesn't sound like a huge number, but in unemployment terms, that's hundreds of thousands of people newly out of work. A 1.6 percentage point increase is actually consistent with what we've seen in prior recessions. So we've never really had the unemployment rate rise that much and not see a recession.
There are other signs that businesses are tightening their belts too. Investment in many sectors has slowed and a growing number of businesses are hitting rock bottom altogether. In fact, we haven't seen corporate bankruptcy numbers this high since the recession in 2008. We lost a lot of jobs in IT so they are migrating some other parts of the world, mostly down south.
Especially I think retail, a lot of my friends they are really going through a hard time. We saw a lot of like stores actually closed down. So right now...
Capital investment is relatively weak. We've also actually seen an uptick in business insolvencies and that is, you know, something that we typically see in recessions. But let's set jobs aside for a moment and consider how much money we all have to spend.
Not enough, right? Retail numbers tell us a lot and here's what retail sales have looked like per capita over the past couple of years. We've all had to be more budget conscious lately.
Households really are stretched and they're having to make some pretty tough choices. Typically, when we feel this way, we're in a recession. And yet, the actual output of the Canadian economy, the GDP, it hasn't tanked. It's been pretty flat, which doesn't meet the definition of a recession.
Generally, for actual recession alarm bells to go off, we'd have to see GDP growth shrink for two back-to-back quarters. We've come close. Like if you look at the latter half of 2023 here, we saw one negative quarter followed by a quarter with exactly zero growth.
That's as close as it gets, right? But so far we haven't seen two negatives in a row. Meaning most economists wouldn't call this a recession. So many people ask us, you know, we're being told the Bank of Canada was able to drastically raise interest rates and we haven't had it result in a recession. They did a great job, that's what everyone's saying.
But then at the same time it's like... If we're not in a recession, why does it feel like things are so tough right now? We can start to unlock this mystery by showing you some of the magic that happens under the hood when all of these very smart people calculate the country's GDP. A big part of that involves looking at how much Canadians spend. And we said Canadians individually are spending less, so you'd expect the GDP to shrink.
But here's something strange. Total retail spending has actually been rising since 2022, while the per capita spending has been dropping. Think about that for a second. How can these two things be true at the same time? Well, here's what Canada's population growth has looked like.
Notice the spike starting around the middle of 2022. According to Statistics Canada, more than 95% of that growth was from immigration. In absolute terms, we've added 1.3 million people to the population over the last 12 months. That's something Canada has never done. Immigration means we're adding way more consumers into the economy.
Those people are all spending, so consumption is going to be higher. More people means more spending overall, even if every individual is spending less. You can think of it like a lemonade stand in a park.
If customers are feeling strapped and they start cutting back their lemonade budget, over time, that stand loses money, right? Maybe they hire fewer people, they cut down on hours. It starts to feel almost recessionary, except a whole bunch of new lemonade drinkers arrive and they've brought money.
They are what keeps businesses afloat. Without them, things would get really bad. So. They are welcomed, money keeps changing hands, and even if people on average are drinking less lemonade than they used to, having more lemonade drinkers more than makes up for that. So if it really hadn't been for this strong immigration, we would without a doubt be in a recession right now.
In 2023, Canada had the third highest GDP growth in the G7. If you look at the growth of GDP per capita, Canada is dead last. But here's the thing, adding more people changes the system.
Because as the demand increases, prices go up. That's inflation. And that squeezes everyone. Again, there's more lemonade being sold, but everyone's drinking less. According to the experts we spoke to, that's part of what's happened here, especially when it comes to housing.
Canada was already dealing with a housing supply problem. So when the population grew by so much so quickly, The cost of housing became even more inflated than it already was, which we know is part of why the Bank of Canada kept interest rates so high for so long. On the one hand, you do have high numbers of newcomers contributing to economic growth. But on the other hand, the demand from newcomers is inflationary, and that makes it harder for the Bank of Canada to cut interest rates to help with the housing crisis. So we're in the situation where The cost of living has skyrocketed, consumers are strapped, unemployment is rising, and yet we're not technically in a recession because the GDP is holding steady.
So what do we call this pickle we're in? Well, there's no official name for it, but the unofficial term that's been swirling around more and more lately is that we're in a per capita recession. I think people are struggling to find a definition to describe the current circumstances because they are so unusual.
So this is a new term, per capita recession, that's entered into our lexicon. that just basically says, okay, even though top line GDP is increasing, which you don't have in a recession, they're saying that at the individual level, it's decreasing, which is aligned with the recession. Now here's the good news.
The Bank of Canada knows all of this is going on too, that on a per capita basis, individuals are struggling, whether or not we're in a recession. According to the governor of the Bank of Canada, unemployment and the need for growth played directly into their decision to cut rates again in July. And every economist we've spoken to over the past month has agreed they expect the cuts to keep coming. The question is, will that be enough to lift us out of this situation?
Whatever you want to call it.