Canada’s unemployment rate has never been this low. Employers are adding jobs and hiring what few workers haven’t already been gobbled up. GDP growth in Canada is also better than any other G7 country.
Yet the economic narrative in this country is dominated by doom and gloom.
In fact, results from Google Trends show that searches for the word “recession” have dramatically risen in Canada, even while the economy continues to churn out growth.
“I think it is a little bit overblown,” said Pedro Antunes, chief economist at the Conference Board of Canada. “I think, obviously, the bad news tends to get more traction in the discussion out there.”
But, he says, the economy is in really good shape.
In fact, Canada’s economy is benefiting from some of the very things that worry consumers — even as it pinches your pocketbook.
High global oil prices are pushing up your cost at the pumps, but it’s acting as a boost to Canadian GDP. Sky-high food prices mean you’re paying significantly more at the grocery store, but they’re driving up the revenue of Canada’s enormous agriculture industry.
Canada specializes in some of the very resources that are globally scarce right now, including oil and agriculture. (Charlie Riedel/The Associated Press)
Still, fear and uncertainty around fast-rising inflation is driving negativity, said Antunes, noting that sentiment matters, because negative expectations can quickly become “self-fulfilling prophecies.”
“If enough people believe the economy is going to tank, and enough people believe equity markets are going to tank, and enough people believe the housing market [is going to tank], then they will,” he said.
The knock-on effect of consumer confidence
Consider this chain of events: Consumers are worried about a potential recession. They scale back on their purchases. They decide to save a bit of money instead of buying that new appliance. Or car. Or jacket.
If you scale that out over Canada’s population, those worries about a downturn can actually cause the economy to slow even more quickly.
Just last month, Bank of Canada governor Tiff Macklem highlighted his concerns that eroding consumer confidence could cause real damage.
“If the economy slowed sharply and unemployment rose considerably, the combination of more highly indebted Canadians and high house prices could amplify the downturn,” he said.
So the Bank of Canada is just as worried as you are — but it also has a lot more data than we do.
This week, the central bank released two key surveys, looking at the confidence levels of Canadian businesses and Canadian consumers.
Both reports highlighted the negative impact of inflation and concerns that high prices will remain in place for a long time.
But the Business Outlook Survey also highlighted the resilience of consumer demand right now.
“Supported by strong demand, many firms intend to increase their investment spending and add staff,” the bank wrote as part of the survey’s overview.
In other words, even with inflation concerns, many Canadian businesses believe consumer demand will remain sufficiently strong enough to warrant new investment and new employees.
Fresh jobs figures coming Friday
While May’s job numbers brought Canada’s unemployment rate down to a record low of 5.1 per cent, the sheer number of jobs created in June is likely to have slowed. (Those figures will be released on Friday.)
But that’s not because businesses need fewer workers.
“We expect Canadian employment growth slowed to 15,000 in June — driven by a dwindling supply of workers rather than a lack of demand,” RBC economist Nathan Janzen wrote in a report released earlier this week.
“The number of job openings edged lower, but is still running almost 70 per cent above pre-pandemic levels.”
So more Canadians than ever before are working, their pay is rising (though not as fast as inflation), and the economy continues to grow.
Should we then shrug off the concerns about where we are headed? Absolutely not.
Just as the weather was warming up, job numbers for May brought Canada’s unemployment rate down to a historic low of 5.1 per cent. (Helen Pike/CBC)
“We’re increasingly concerned that a conjunction of headwinds, along with [debt] imbalances in the household sector, could push the Canadian economy into recession,” Tony Stillo, a director with Oxford Economics, wrote in a research paper released Wednesday.
“We still view a soft landing as the most likely outcome for the economy, but we estimate the probability of a recession over the next 12 months has risen to about 40 per cent.”
Most forecasts still show the Canadian economy will grow through 2022 and slow to something close to zero near the end of the year. It’s a precarious situation that comes after some of the most volatile years in decades.
The pandemic upended all of our expectations. Just about everyone assumed an economic shock like the one we saw in the spring of 2020 would spark a recession unlike anything we’d seen since the Great Depression.
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But households and businesses were kept afloat by an unprecedented wave of government support.
Experts then said the end of the pandemic would lead to a surge in spending unlike anything we’d seen since the Roaring ’20s.
Again, the forecast missed the mark, as COVID-19 refused to wane and consumers stayed home.
Given the uncertainty of the past 2½ years, who can blame households today for looking past all the good economic data, and focusing on the negatives of what may come down the road.