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On several fronts, things are getting worse for Canada’s economy. Growth is petering out. The labour market is shedding jobs. And inflation is far too high. In turn, a growing number of domestic banks are projecting Canada will slip into recession by next year.

The mood soured on Wednesday as the U.S. Federal Reserve projected that much higher interest rates would be needed to quell inflation. The central bank also forecast that U.S. economic growth would slow to a meagre 0.2 per cent this year – unwelcome news for Canada’s largest trade partner.

How vulnerable are Canadians to a downturn? Thus far, the average household seems to be managing just fine. But undoubtedly, risks are rising. And the longer it takes to contain inflation, the more collateral damage could spread through the economy.

Here are eight metrics to watch for signs of distress.


Canadians are experiencing a wealth shock. Their collective net worth – that is, total assets minus liabilities – fell by nearly $1-trillion in the second quarter of this year, a 6.1-per-cent decline from the first quarter that ranks as the largest decline on record. The upside: Households remain a lot richer (around $3-trillion) than before the pandemic. Mind you, the adjustment is not over. Home prices are continuing to fall in the third quarter as rising interest rates cool the real estate market, from which Canadians derive most of their net worth. That could force people to think twice before making large purchases. “Higher interest rates are making households look and feel less wealthy, and will also increasingly cut into purchasing power,” Royal Bank of Canada economist Claire Fan wrote in a recent report.

Debt payments

Canadians have loaded up on debt over the pandemic. They now owe roughly $2.8-trillion, up 16 per cent from the end of 2019. As interest rates climb, households are dedicating a larger portion of their budgets to repayment. In the second quarter, the debt-service ratio – total obligated payments of principal and interest, as a proportion of disposable income – was 13.6 per cent. That is lower than before the pandemic – but perhaps not for long. Toronto-Dominion Bank economist Ksenia Bushmeneva expects the debt-service ratio to hit a new record by early next year. She calculated that for the average borrower, debt-servicing costs could rise by $2,500 a year by the end of 2023, compared with early in 2022. Even if Canadians can afford those higher payments, it could crowd out other purchases.


Canadians love to use their homes as piggy banks. Specifically, they take out loans secured against their homes, otherwise known as home equity lines of credit. The amount owing on HELOCs continues to grow. As of the fiscal third quarter, ending July 31, Canada’s Big Six banks reported domestic HELOC balances that totalled $265-billion, up from $228-billion three years earlier. Interest payments are tied to a bank’s prime rate, which has risen substantially as the Bank of Canada increases its policy rate. The three-percentage-point surge in the prime rate since March 1 means that interest-only HELOC payments have doubled, going from roughly $246 a month to $496 a month, per $100,000 borrowed.


Typically, insolvencies rise in a recession. Not in the COVID-19 downturn. Governments propped up personal incomes through pandemic stimulus programs, which contributed to lower rates of insolvency (proposals and bankruptcy) and poverty. As those programs expired, consumer insolvencies started to pick up again. But those levels remain modest – especially when measured against Canada’s rapidly growing adult population. Delinquency rates, or payments that are overdue by 90-plus days, are rising for many loan types, but aren’t any worse than in prepandemic years. The numbers suggest Canadians aren’t in financial trouble – at least yet.

Core inflation

The good news on inflation: Annual rates are ebbing in the United States and Canada. The bad: Other measures of consumer price growth are proving sticky. For instance, U.S. core inflation – which excludes food and energy – accelerated in August. Canada saw a slight moderation in core inflation last month, but nowhere close to levels that will please the Bank of Canada. This reinforces the likelihood that major central banks will continue to raise interest rates to tame inflation. For its part, the Bank of Canada doesn’t see inflation returning to its 2-per-cent target until late in 2024. The situation is heaping loads of pressure on Canadians who, for the most part, haven’t seen their wages keep up with price increases.


Broadly speaking, Canadians are mostly taking inflation in stride. Retail sales hit $63.1-billion in June, an increase of 11 per cent from a year earlier. After accounting for inflation, retail volumes rose 1.9 per cent. Put another way: Households are spending more, but have yet to start buying less stuff. That could change soon. In a preliminary estimate, Statistics Canada said retail sales fell 2 per cent in July. Lower gasoline prices that month likely had an outsized effect. But analysts will be looking for any signs that consumers are paring back their purchases amid steep inflation and rising borrowing costs.


Home prices have fallen since February in many markets. But with the rapid increase in mortgage rates, affordability is actually worsening. This is putting even more pressure on a rental housing market that is chronically undersupplied in major cities and absorbing record flows of newcomers. In turn, rents are surging just about everywhere. The average asking rate for all property types in Canada is up 11.1 per cent from a year ago, according to data from For one-bedroom units, the increases are particularly sharp in London, Ont. (36.9 per cent), Calgary (29.8 per cent) and Vancouver (18.8 per cent). Of course, many tenants are covered by rent-control legislation that caps annual increases. But for those moving homes, the market is wildly competitive and getting pricier.

Labour demand

As the economy cools, so, too, has demand for labour. Job postings on Indeed Canada have weakened since May, but remain significantly higher than before the pandemic. There are plenty of help-wanted signs out there, especially in industries with a crushing shortage of workers, such as health care and hospitality. Even so, the labour market is going through an adjustment. Canada has shed jobs for three consecutive months – that typically happens during a recession – and the unemployment rate has risen to 5.4 per cent, not far off a record low. Time will tell whether the adjustment is brief or leads to widespread layoffs. Stateside, the situation is complicated. Despite a vigorous debate over whether the U.S. has fallen into a recession, employers there have created more than 3.5 million jobs this year, so far. And hiring binges aren’t exactly consistent with economic downturns.

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