Since the Bank of Canada started increasing interest rates in April 2022, there’s been talk of a possible recession. Normally, rapid increases in interest rates lead to job losses and decreased economic activity. Canada has dodged a recession so far due to factors like global commodity prices and a strong US economy. Still, some signs suggest our economy might weaken.
Construction is a leading indicator for overall economic activity. The value of residential building permits can inform us about job security in the construction industry. It also indicates how much our housing supply is likely to grow. This is important because more housing helps stabilize costs for both homeowners and renters. A high value of residential building permits therefore suggests a healthy economy. However, after controlling for inflation, this value has fallen to an average of $3.5 billion in the first half of 2023, compared to a high of $5 billion in the first half of 2021.
Employment trends also shed light on Canada’s economic health. Employers reported over 1 million job openings in the second quarter of 2022. Since then, the number of job vacancies has decreased by 150,000 across a broad range of occupations and sectors, but especially for jobs that require a high school diploma or less.
Moreover, while the number of employment insurance claims significantly dropped at the beginning of 2023, we began to see more workers applying for regular EI benefits in the second quarter of the year.
The headline unemployment rate remains fairly low at 5.5%, though it has risen slightly in the last three months. But there are other factors to consider. These include part-time workers who want more hours, workers who are waiting to be called back to their old jobs and those who want to work but have given up looking. When we add these workers to our unemployment statistics, we can see that there were 2.5 million unemployed or underemployed workers in Canada in July 2023 — an increase of 260,000 from July 2022. This increase comes from 190,000 more people being unemployed and 70,000 part-time workers who want full-time work.
While these data points don’t guarantee an upcoming recession, they are important signs to watch as we head into the fall.