- Canada Faces Rising Unemployment Amid Rapid Population Growth
In May 2024, Canada saw its unemployment rate rise to 6.2% despite a net gain of 27,000 jobs. This increase in unemployment is attributed to the country’s rapid population growth outpacing job creation, particularly in full-time positions. While part-time employment grew by 62,000 jobs, full-time employment shrank by 36,000, suggesting that many Canadians are struggling to find stable, long-term work. This shift towards part-time roles reflects broader economic pressures and highlights a significant change from the post-pandemic recovery period, which was characterized by robust full-time job growth (Lord, 2024).
The labour market's evolving landscape is having a pronounced impact on young Canadians. In May, the employment rate for students aged 20-24 fell to 61%, down from 63.9% the previous year, signalling difficulties for this demographic in securing summer jobs and early work experience (Lord, 2024). Experts note that the influx of non-permanent residents, including temporary workers and international students, is intensifying competition for these entry-level roles. This competition is expected to remain high, although potential government caps on international student visas might slightly alleviate the pressure (Wong, 2024). The cooling economy and reduced full-time opportunities are forcing many young Canadians to compete with more experienced workers who are also shifting towards part-time or seasonal employment (Lord, 2024).
Despite these challenges, there are signs of economic resilience. The Bank of Canada recently cut interest rates for the first time in over four years to stimulate growth. However, economists are cautious, suggesting that significant economic recovery and accelerated hiring may not occur until 2025. In the meantime, Canada’s population continues to grow rapidly, driven almost entirely by international migration, which accounted for 99.3% of the increase in the first quarter of 2024 (Wong, 2024). This rapid growth is putting additional strain on housing and infrastructure, highlighting the need for effective policy responses to manage the challenges associated with a growing labour force and to support the country’s economic stability (Wong, 2024).
- Navigating Economic Stagnation: Canada’s Path to Growth Amidst Productivity Challenges
The Canadian economy is currently navigating a complex landscape marked by stagnant growth, high consumer debt, and challenges in productivity. Despite the Bank of Canada and the European Central Bank initiating rate cuts to stimulate economic activity, Canada's momentum remains sluggish (TD Economics, 2024). High levels of consumer debt and ongoing structural adjustments are constraining economic expansion. Moreover, while May's inflation was lower than expected, geopolitical tensions and domestic labour market issues pose ongoing risks. The rapid population growth driven largely by immigration is further straining housing and infrastructure, exacerbating pressures on consumer spending and labour markets (TD Economics, 2024).
The challenges facing Canada’s economy are compounded by a significant productivity decline. Since 2019, per-capita output has stagnated, and the economy is now smaller than it was then, even after adjusting for inflation and immigration (RBC Economics, 2024). Canada’s productivity lags significantly behind that of the United States, with Canadians earning about $20,000 less per person annually in economic output. This gap is not just in income but also in investment returns, with Canadian investments growing more slowly than their U.S. counterparts. A major factor is the lack of investment outside of key sectors such as real estate and public services, which has hindered the country from fully leveraging its immigration-driven population growth and competing effectively on the global stage (RBC Economics, 2024).
Addressing these productivity issues requires substantial policy reforms. Inefficient regulatory frameworks and infrastructure bottlenecks have hampered business efficiency and investment. High administrative costs and internal trade barriers create significant hurdles for businesses operating across provinces and internationally, contributing to lower productivity growth, particularly in construction and the service sector (RBC Economics, 2024). Nonetheless, there is potential for growth through targeted policy changes, such as reducing trade barriers, enhancing tax competitiveness, and better utilizing immigrant skills. Investing in new technologies and leveraging Canada’s highly educated workforce could transform productivity and stimulate economic growth, converting current challenges into opportunities for a more prosperous future (RBC Economics, 2024).
- Canadian Economy Faces Slow Recovery Amid Declining Consumer Spending and Rising Travel Costs
Canadian consumer spending continues to face challenges, reflecting a broader trend of economic sluggishness. In Q2 2024, core consumer spending saw a decline on a per-capita basis, following a brief surge in April (Fan, 2024. This decline was particularly evident in discretionary services such as dining out, which remained at levels similar to late 2023. Despite a gradual recovery in air travel, with passenger numbers at major airports nearing pre-pandemic levels, overall economic momentum remains subdued. The housing market also showed no signs of a rebound, with home resale and renovation activities continuing to decrease since the spring of 2022 (Fan, 2024).
The outlook for the Canadian economy suggests that recovery might be slow and uneven. While the Bank of Canada has initiated an easing cycle, interest rates remain elevated, constraining consumer spending. Travel expert, Kokonis told Global News “The air transport sector in Canada is tracking ahead of the first full post-pandemic recovery year 2023, and in some cases, tracking ahead and expected to surpass 2019 pre-pandemic passenger volumes by year-end 2024,” (Barghiel, 2024). Additionally, 7 out of the 8 Canadian international airports saw an increase in passenger traffic this April compared with April 2023. However, high debt servicing costs and limited disposable income are likely to suppress consumer spending on a per-capita basis until the end of the year. As airlines like Air Canada grapple with financial losses due to rising costs, the broader economic impacts of reduced consumer spending and housing market stagnation underscore the challenges facing Canada's path to economic recovery (Barghiel, 2024).
Financial Tip of the Month: Summer Vacation Without Breaking The Bank
With summer in full swing, planning a budget-friendly vacation might seem daunting, but by setting a realistic budget and seeking out deals and discounts on travel and activities, you can enjoy a fantastic holiday without overspending. Opt for affordable destinations and enjoy free or low-cost activities like hiking and local events. Dining out may seem tempting, but home cooked meals using in season food can make for a delicious and wallet friendly time. Additionally paying in cash can help you control spending and stay within your budget.
At Alpen Investment Advisors, your trusted North Vancouver iA Investia team, we are committed to keeping our valued clients informed. We trust that you have found this market recap informative and insightful. Please do not hesitate to reach out to your dedicated financial advisor, jonathan@alpenia.ca for any questions about your portfolio or to help navigate the process of growing and preserving your wealth.
References:
Barghiel, N. (2024, May 30). Is air travel back in full swing? what New Statistics Canada data suggests - national. Global News. https://globalnews.ca/news/10533947/canada-airports-passenger-travel-volumes-statistics-canada/
Fan, C. (2024, June 19). RBC consumer spending tracker - RBC economics. RBC Thought Leadership. https://thoughtleadership.rbc.com/rbc-consumer-spending-tracker/
Lord, C. (2024, June 7). Jobless rate rises to 6.2% in may. are more rate cuts in the cards? - national. Global News. https://globalnews.ca/news/10552094/statistics-canada-jobs-report-may-2024/
RBC EconomicsJune 4. (2024, June 5). Canada’s Growth Challenge: Why the economy is stuck in neutral. RBC Thought Leadership. https://thoughtleadership.rbc.com/canadas-growth-challenge-why-the-economy-is-stuck-in-neutral/
TD Economics. (2024, June 18). Canadian Quarterly Economic Forecast. TD Canada Trust. https://economics.td.com/ca-quarterly-economic-forecast
Wong, D. (2024, June 20). Canadian population growth slowing as unemployment rises. Better Dwelling. https://betterdwelling.com/canadian-population-growth-slowing-as-unemployment-rises/
