Economic growth – Canada’s economic growth remains strong, with the Bank of Canada forecasting economic growth at 3.5% for 2022. This is partly because our economy is benefiting from higher international prices for fossil fuels and other commodities. In contrast, economic growth in the United States slowed in the first two quarters of 2022. Slowing growth is a common indicator of a recession. Ordinarily, this might cause concern about US economic weakness spreading to Canada. However, other indicators, like employment and consumer spending numbers, suggest that the American economy remains in a good position.
Jobs – Unemployment reached an historic low of 4.9% in June. In July, the unemployment rate for students returning to school in the fall was the lowest since 1989, at 11%. But the picture is not all rosy. The number of people working in the health care and social assistance sector fell by 22,000 in July, despite the ongoing health care crisis and the sector’s desperate need for workers. When it comes to working conditions, data indicates that, despite waning pandemic restrictions, nearly 25% of workers are still working most of their hours from home.
Wage trends – This summer, the average hourly wage increased by 5.2%. This is far less than the average Consumer Price Index increase of 8.1%. Wage growth is varying significantly by sector. Average weekly wages for workers in professional, scientific, and technical services grew by 8% in May 2022 compared to a year earlier. In contrast, the average weekly wage for workers in educational services increased by only 1%. Non-union wages are rising faster than union wages, as unionized workers must wait for bargaining to address unexpected inflation.
Uneven impacts of inflation – Inflation impacts lower-income households more severely than higher-income households. While middle- and higher-income workers are also affected by higher costs, research shows that these households tend to be able to reduce their spending by cutting discretionary expenses, buying no-name brands, or using coupons. Workers with lower incomes are more likely to be economizing already and so are unable to reduce their budgets without cutting out necessities. This means that wage growth for lower-income workers needs to increase faster than the Consumer Price Index to protect their purchasing power.
Interest rates – The Bank of Canada increased interest rates to 2.5% in mid-July. They also announced that they will likely increase interest rates several more times by the end of 2022. How much interest rates increase will depend on whether inflation continues to be higher than expected, or if it starts to slow down. Other indicators that the Bank of Canada will be watching include employment and wage growth. Increasing interest rates is supposed to reduce prices by reducing consumer demand. If employment and wage growth are strong, the Bank of Canada will be concerned that consumer demand will be strong as well – and they will respond by increasing rates even higher.