The Canadian economy is clearly in trouble.
Let’s start by talking about the 4 trouble indicators.
Then I’m going to talk about this one thing that may quickly switch things around.
With this fast changing world, one unexpected thing can totally cause a 180 degree flip.
So we are going to talk about that and it is not the rate cut that’s well expected next Wednesday.
#1 Declining Retail Sales
The latest Canadian retail sales numbers just released on July 19 showed a significant decline.
In May 2024, retail sales fell by 0.8% month-over-month, reversing the previous month’s revised gain of 0.6%.
This decline was sharper than expected and affected nearly all sectors.
Core retail sales, excluding auto sales and gas, dropped by 1.4%, much worse than the anticipated 0.5% decline.
Key sectors such as food and beverage stores, building materials, and general merchandise saw notable declines.
E-commerce sales also contracted by 3.6%, reflecting a downturn after several months of growth.
Geographically, nine out of ten provinces reported decreased sales, with Alberta experiencing the steepest drop at 2.5%.
British Columbia saw a 1.3% decline, with Vancouver seeing a 1.2% decline.
Ontario saw a 0.3% decline, with Toronto actually seeing a 0.3% increase in sales.
#2 Rising Unemployment Rate
The unemployment rate in Canada increased from 5.4% mid-2023 to 5.8% by the end of the year.
This increase represents an additional 203,000 unemployed persons, a 19.5% rise from December 2022.
Despite adding 41,000 net new jobs in February 2024, the latest unemployment rate rose to 6.4% in June, up from 6.2% in May.
This increase marks the highest unemployment rate since October 2021.
#3 Declining GDP Growth
In 2022, Canada’s GDP grew by 3.4%, supported by strong consumer spending following the pandemic.
The growth was then challenged by high inflation and rising interest rates towards the end of the year.
So in 2023, GDP growth slowed significantly to 1.1%.
This year, 2024, the GDP growth rate is expected to further slow down to only 0.7%.
#4 Shifting Labour Market Trends
In 2022, Canada saw record high job vacancies, reaching over 1 million vacant positions in the second quarter.
This number began to decline towards the end of 2022, with vacancies dropping to around 843,200 by the first quarter of 2023.
The downward trend continued.
As of the most recent data, Canada has approximately 648,600 job vacancies, down 36% from its peak in 2022.
This shift points towards an employer’s market, where job seekers have less negotiating power and wage growth is slowing down.
All of the above 4 indicators are clearly pointing to a slowing down Canadian economy.
Besides, the latest inflation rate in June slowed to 2.7%, further decreasing from the 2.9% in May.
Rate cuts are obviously needed to stimulate the economy.
The Bank of Canada did a 0.25% cut last month and there was almost no effect.
We didn’t see much change in any sectors.
Another 0.25% cut is well expected in the upcoming rate announcement a few days later on July 24.
That will bring the overnight interest rate down to 4.5%.
Given the current state of the economy, the rate cuts are really too little too slow.
The Bank of Canada is hesitant to do bigger and faster cuts because the United States hasn’t started their rate cut cycle yet and we may not see a cut until near the end of this year.
However, a bullet changed everything in this fast changing world.
The assassination attempt on Donald Trump has significantly impacted the political landscape.
Following the incident, Trump’s support has surged.
Many people are now seeing him as a resilient figure.
Polls indicate an increase in his favourability and support among voters.
His lead over Biden has widened in several key states and nationally.
Some analysts believe that the incident has strengthened his base and increased sympathy from undecided voters.
Do you think his chances of winning the election are significantly boosted?
If Donald Trump wins the election, his economic plan, including rate cuts, is all about boosting economic growth.
Trump has always been a fan of lower interest rates to make borrowing and investing easier.
He’s been pretty vocal about his dislike for the Federal Reserve’s higher interest rates and has pushed for cuts to give the economy a kick.
So if he’s back in charge, expect him to push the Federal Reserve to lower rates to help grow the economy, cut down unemployment and get people spending more.
And you know him, he’s going to do it fast.
Here’s the thing.
Canada is likely going to follow the US footsteps.
So we can potentially see multiple rate cuts happening very quickly in 2025.
And that may bring significant changes to our economy and the housing market.
This world is changing so fast, and it’s full of surprises.
From unexpected political events to sudden economic shifts, you never know what’s coming next.
That’s why it’s super important to stay up-to-date and be ready to adapt.
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